Tuesday Morning Dairy Market Update - Complex Continues to Struggle

GENERAL COMMENTS:

Live cattle could not retain initial strength, as spillover pressure from feeder cattle impacted futures. Feeder cattle reacted to strong grain price and may likely do the same Monday. Traders had nothing else to provide much strength as boxed beef resumed weakness. Choice was down $0.76 with select down $2.00. There was no interest shown in the cash market Monday and likely will not be any Tuesday. However, feedlots may not be in the position to hold out for higher prices this week as grain prices are escalating. The conflict in the Ukraine is hindering exports and if it continues to drag on, it may be difficult for farmers to plant some of their crops this year, which will push grain prices higher. Holding out for higher cash may not be profitable. Packers continue to see dwindling profits which may leave them less aggressive. The Commitment of Traders showed funds trimming their net long positions by 628 contracts with their current net longs at 85,433 contracts.

Hog futures tried to regain some of last week's losses but failed to uncover sufficient buying interest racking up four consecutive days of losses. Cash increased on the National Direct Afternoon report with a gain of $1.62 but that was offset to some extent by cutouts declining $1.05. The market has corrected the overbought technical status, which might bring more aggressive buying back into the market. Hog slaughter is not yet back up to where it was a year ago with some of that possibly due to tighter market ready supplies. Tighter supply is expected to continue. The Commitment of Traders report showed funds reducing their net long futures positions by 2,281 contracts moving their net long position to 76,961 contracts.

	BULL SIDE		BEAR SIDE
1)	The slaughter pace of cattle is brisk and packers need to purchase supply to keep up with demand.	1)	Live cattle futures are anticipating weakness in cash cattle this week. This may reduce the interest of feedlots to hold out in the face of rising grain prices.
2)	Cattle futures are nearing technical support, which could cause short-covering and renewed buying interest from traders.	2)	Continued weakness of boxed beef will cause packers to be less aggressive. They may dig in their heels this week and not pay up for cattle.
3)	Hog futures slowed their decline Monday with later contracts closing higher. Liquidation may have run its course and traders may buy back into the market.	3)	April hogs still have a chart gap way down $91.40 or $12.00 lower than where they are. Gaps generally are filled and that is a long way down.
4)	Hog supplies are somewhat tight and expected to tighten as the year progresses. Price weakness may be limited.	4)	Hog futures may test support which is around $2.00 to $2.50 lower before the selling pressure subsides.