GENERAL COMMENTS:
Probably the knee-jerk reaction news was the announcement from Brazil's Agricultural Ministry that they are investigating a possible case of atypical mad-cow disease. Tests are currently being done for confirmation. There were two cases of atypical BSE confirmed in 2021, which resulted in China banning imports of beef from Brazil for a period. This could be a big deal if it was confirmed and the same takes place. It would mean more demand from the U.S. with an already tighter supply. The other aspect is a strong potential for higher cash this week. Boxed beef was up strongly Tuesday with choice up $4.31 and select up $2.79. There is no reason feedlots will not hold out for higher cash. The general consensus is the upcoming Cattle on Feed report will continue to show a contraction of the cattle herd providing support.
Hog futures started the day higher and never looked back. Strong cutout prices and higher cash on Monday set the bullish tone. Short-covering as stops were hit propelled the market through technical resistance to the highest close since Jan. 10 in the April contract Tuesday. Cash was higher again on the National Direct Afternoon Hog report with a gain of $0.15. The concern was the large decline of cutout values Tuesday with price down $4.71. This is still a gain so far this week as it was up $5.63 on Monday. It is difficult to say whether traders will trade the weakness of cutouts Tuesday or if they will wait to see what Wednesday's values will show.
| BULL SIDE | BEAR SIDE | ||
| 1) | New highs in the cattle keep the uptrend very much alive. Strength will provide confidence for feedlots to hold for more cash. |
1) | If the potential case of BSE is not confirmed after testing and there is no ban on Brazilian beef, the market could fall back. |
| 2) | If the BSE case is confirmed in Brazil, China could again stop imports of their beef, potentially increasing the demand for U.S. beef at a time when supplies are tightening. |
2) | Live cattle already have an increase of cash this week factored in, leaving traders looking ahead to the Cattle on Feed report. |
| 3) | Two days of stronger cash at the beginning of the week would suggest demand for pork may be increasing and packers need to purchase more aggressively. |
3) | The drop of pork cutouts is of concern and may put pressure back on the market again. |
| 4) | If this is the first day of a short-covering rally, then there may be about two more days of strong gains as short-covering most often runs its course over about three days. |
4) | The strong gains in hogs Tuesday will need to be supported by fundamentals to continue. Technical trading can only take the market to a certain extent |
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