Even though the Cattle on Feed report was bullish, the market did what it generally does and that is fade the report. It already had it factored in with traders waiting for cash to develop this week. The strength of cash last week should carry over to this week, but at these lofty levels, one wonders just how much higher prices will go. Cash trading activity last week seemed to be on the light side with trade taking place into Saturday. However, of the cattle purchased last week, 24% were for deferred delivery. With boxed beef prices continuing higher, packers have no choice but to remain aggressive as demand needs to be met. Choice cuts increased $1.06 Monday with select up $2.17. February live cattle futures cease trading today with April taking over as front month.
Hogs tried to hold positive territory but succumbed to selling pressure as the day progressed. The morning reports showed the potential for positive cash and cutouts, but traders were uncertain whether that would hold for the day. The National Direct Afternoon Hog report showed a gain 0f $0.34 while cutouts posted a gain of $0.59. This should provide some support in Tuesday's trading as it indicates packers are interested in purchasing hogs. Technically, the market closed below support, which could open the way for further selling, but positive fundamentals Monday may move futures back above support.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cattle are expected to trade higher again this week. Supplies are tight and demand is good. Packers will need to purchase what they need and pay the price. |
1) | Cattle futures seem to be tired and are having some difficulty continuing to move higher due to the current lofty levels. This could trigger a price retracement. |
| 2) | Boxed beef has been trending higher after a period of time during which prices were weaker. With higher boxed beef, packer margins remain good even though they are paying more for cattle. |
2) | Packers were able to purchase some cattle ahead last week which may allow them to be a little less aggressive in the cash market this week. |
| 3) | The week began with packers more aggressive in purchasing hogs similar to last week. Both export and domestic demand may be improving. |
3) | Hog futures closed below recent support, which may result in lower trade as sellers may be more aggressive. |
| 4) | The action over the next few days will determine whether hog futures may be forming a head-and-shoulders bottom. |
4) | Cutouts need to see more consistency to provide confidence to traders. The uncertainty leaves them less willing to purchase for the long term. |
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