GENERAL COMMENTS:
It was an interesting week for cattle with the last half of the week showing sideways consolidation in live cattle futures. Traders waited for cash direction, but little was to be seen. Very light trade took place $1.00 lower, which will make for an interesting week. Packers had sufficient cattle purchased ahead and the hot weather last week left them less aggressive in the market. It is likely packers will need cattle this week and may need to pay up for them if feedlots continue to hold out. Packers will not want to pay up as boxed beef prices continue to weaken. Choice was down $0.86 and select down $2.22 on Friday. Packer margins are substantially below last year and the three-year average. Lower corn futures might provide some support for feeder cattle today. The Commitment of Traders report showed funds reducing their long position by 7,200 contracts, bringing their net-long position to 106,615. Funds sold 1,801 contracts of feeder cattle, moving their net-long position to 14,212 futures contracts.
Hogs had a good day to end the week. Traders seemed to position themselves ahead of the end of the month, resulting in short-covering. They also reacted to stronger cutouts from Thursday. However, this may not carry over to Monday as both cash and cutouts were lower. The National Direct Afternoon Hog report showed cash down $3.06 with cutouts down $1.26. This sets the stage for lower futures Monday as traders react to the weakness. The Commitment of Traders report showed funds adding 388 contracts, moving their net-long futures positions to 26,574 contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | Packers purchased a limited volume of cattle last week, so they will need to be more aggressive this week to keep from being short on supply. | 1) | Even though corn prices are declining again, it costs money to hold cattle for extra time. Feedlots might be trading dollars for dollars with limited, if any, benefit. |
| 2) | Limited weight gain during the hot spell may limit grading and lower corn prices might leave feedlots less willing to move cattle this week unless at higher prices. | 2) | Significantly tighter packer margins and further boxed beef weakness may further reduce slaughter pace, requiring lower numbers to be purchased. |
| 3) | August hogs are about $2.50 below the index with two weeks remaining for the contract. This will need to converge. | 3) | August hogs left a gap on the stronger opening Friday. This gap may be filled Monday as cash and cutout weakness Friday will impact trading activity. |
| 4) | Pork packer margins are near the three-year average, which should keep them active in the cash market and support prices. | 4) | October hog futures closed near technical resistance, which may increase selling pressure. |
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