GENERAL COMMENTS:
The fear of lower cash seems to be coming to fruition. After quite a few weeks of cash strength, feedlots are letting cattle go at $1.00 lower in most cases. Cattle can only be held for so long before they need to be moved to slaughter. Packers have been slowing slaughter pace and it is working to their benefit as boxed beef prices are improving. Yesterday, choice jumped $5.15 with select up $1.49. There is not much expected for movement today in cattle futures as traders position themselves ahead of the Cattle on Feed report to be released after the market closes. The report is expected to continue to show tighter numbers with the on-feed estimate as of August1 at 98.4% of a year ago. Placements in July are expected at 94.5% with marketings in July at 94.8% of a year ago. This would be supportive to the market, but traders will be leery over any bearish surprise. Weekly export sales totaled 15,100 mt, which was 2% below the previous week. Feeder cattle traders follow the same sentiment with uncertainty over the report.
Hogs found buying interest yesterday, but not because of cash or cutouts as they had been weaker for the first three days of the week. Cutouts gained $0.52 yesterday but the final print was not released until after the close. This may have some influence on trade today. Traders may also be covering short positions ahead of the weekend. The National Direct Afternoon Hog report showed cash down $0.44 with a weighted average of $93.01. The October contract continues to hold a substantial discount to cash but traders see no reason to narrow the gap as there is uncertainty over demand moving forward. The volatility of cutouts over the pasts few weeks has increased the uncertainty of the market. Weekly export sales totaled 28,700 mt and an increase of 29% from the previous week. Saturday slaughter is estimated at 61,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | The selling pressure due to the concern about lower cash and the upcoming Cattle on Feed report may subside today with some stability being found. | 1) | October cattle futures closed below the 40-day moving average and right near support. Further weakness today or Monday could result in further liquidation. |
| 2) | Estimates for the report today would be supportive to the market if the actuals are near those estimates. Cattle supply remains tight. | 2) | Cash trading $1.00 lower is a disappointment and could cause long liquidation in anticipation of further weakness of cash. |
| 3) | Hogs might see further buying interest today due to cutouts gaining yesterday. Traders generally trade the strength or weakness the following day. | 3) | The October hog contract closed nearly $1.00 off its high as traders seem to have little concern over the large discount to cash. |
| 4) | Lower pork prices could increase international demand moving more pork to the export market keeping supply from backing up domestically. | 4) | The volatility of cutouts recently and the weakness of cash keep traders somewhat bearish on the market. Uncertainty over demand through the end of the year will continue to weigh on price potential. |
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