GENERAL COMMENTS:
Traders are trying to balance the significant weakness of boxed beef against the strong potential for higher cash. Feedlots are looking for higher prices again this week, posting offers at $3.00 higher. Yes, cattle supplies look like they may tighten next year, but packers are dealing with the here and now. Showlists are larger, which may leave packers less aggressive. However, demand is strong and they will need to purchase for nearby processing needs as well as for the next few weeks. Their resolve will be tested again. It is anticipated cash business will develop Wednesday. Cutouts may be a drag on the market with choice down $4.50 and select down $2.17 Tuesday.
Hogs slid much of the day but were able to rebound slightly into the close. It looks like the February contact may retest the lows before uncovering buying interest. There were issues with reporting, leaving traders guessing as to the direction of cash and cutouts. Delayed reports generally are bearish to the market as uncertainty causes traders to sell. However, after three days of fund selling, the market is ready for a bounce. Hog slaughter continues to run lower than the previous week and the previous year. Increasing weights may be the result of the backup of supply. Packers may not be aggressive the rest of this week due to the sufficient supply of hogs already purchased.
| BULL SIDE | BEAR SIDE | ||
| 1) | Packers still do not have many cattle bought ahead, which may require higher cash to fill current demand as well as projected demand for the first quarter. | 1) | Traders are reluctant to buy futures in anticipation of higher cash cattle. If gains are less than expected, further increases may be difficult to materialize. |
| 2) | Tighter cattle supplies are expected as we move through next year. Demand for feeder cattle remains strong with cash prices increasing. | 2) | Plummeting boxed beef price may put the brakes on packer spending, limiting price gains. |
| 3) | Hog futures have declined for three consecutive days. Fund selling generally runs its course over that time, making futures ripe for a bounce. | 3) | Even though there were difficulties with reporting of hog cash prices and cutouts leaving no indication of prices, the anticipation is that prices slid. |
| 4) | There are chart gaps in hog futures remaining above the market that need to be filled. | 4) | There are plenty or market-ready hogs available to the market at heavier weights. This suggests supply is backing up. |
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