GENERAL COMMENTS:
Pressure increased on live cattle futures after the WASDE report was released Tuesday with USDA estimating an increase of beef production. The average cattle price for next year is $128.75. This may be overcome over time by the potential for China to become a large importer of beef next year. There were no cattle traded on the cash market as there has been little interest shown so far by packers. Feedlots are asking higher prices, as usual. The numbers on the WEADE report and further pressure on futures may have packers bidding no better than steady prices. Boxed beef prices were again lower with choice cuts showing a minor loss of $0.05 while select cuts fell $2.29.
Hog futures took a beating again closing quite a bit of the chart gaps held in all contracts. The exception was October, which has only two days of trading remaining. Its chart gap will remain unfilled as time is running out. According to the WASDE report released Tuesday, pork production is estimated to decline due to tighter supply reducing slaughter numbers. This should have provided some support to the market but estimates also reduced pork exports. The average hog price is estimated at $60.50 for next year. Cash price finally showed some strength with the National Direct Afternoon report up $0.49. However, cutouts fell out of bed, declining $5.63. This could set the tone for filling the chart gap Wednesday or in the next few days before the market will bounce.
| BULL SIDE | BEAR SIDE | ||
| 1) | Packers will need to purchase cattle and may step up a bit more aggressively this week, possibly paying higher cash. | 1) | The estimates on the WASDE report were bearish, which may continue the long liquidation phase that the market has been in. |
| 2) | Traders have digested the WASDE report and may buy back into the market, defending the gains of the past week. | 2) | Packers may pay no more than steady money this week as cattle will need to come to the market. |
| 3) | Hogs may find solid support if futures close the chart gaps. Funds continue to add to long positions and closing the gap could increase aggressive buying. | 3) | Hog futures seem destined to close the chart gap, which may be accomplished over the next few days. |
| 4) | December hog futures hold a large discount and will become the front-month on Friday. This could provide the confidence for traders to establish and increase long positions. | 4) | The fall of cutouts Tuesday sets a bearish tone for nearby demand. |
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