GENERAL COMMENTS:
Cattle tried to rally back somewhat early Tuesday, opening higher and then moving to triple-digit gains. Mostly short-covering took place as some traders banked profits after the large decline. Once that ran its course, futures fell back resulting in a mixed close. October live cattle and October feeder cattle closed higher as they need to converge. The last day to trade October feeder cattle is Thursday with the last day for October live cattle being Tuesday. Some cattle have already traded this week as the drop in futures triggered some cattle sales early with prices $1 to $2 lower. Some cattle owners fear holding for higher prices may only result in yet lower prices. Boxed beef was higher with choice up $1.44 and select up $2.98. That may not provide much support given the current negativity in the market. Buyers of feeder cattle have pulled back and are purchasing cattle at lower prices as the price outlook for fat cattle does look quite as rosy as it was a few weeks ago.
Hogs continue to struggle with February through June contracts making new lows. Futures have moved straight down over the past three weeks without a retracement. Both cash and cutouts continue to struggle as supply exceeds demand. The National Direct Afternoon Hog report showed cash down $0.84. Cutouts fell $1.96 to a price of $86.59. Futures are oversold technically but that is meaningless if fundamentals continue to remain bearish. Market-ready hogs are plentiful leaving packers less aggressive as they see no evidence of tightening supply.
| BULL SIDE | BEAR SIDE | ||
| 1) | Live cattle futures have chart gaps above the market that may be filled at some point. |
1) | The failure of cattle futures to hold gains Tuesday indicates the strength was more the result of short-covering and not new buying interest. |
| 2) | Boxed beef prices have been stronger, indicating demand remains good. Packers may not pull back too much as they need cattle to meet demand. |
2) | Lower cash prices this week may keep the market on the defensive with traders cautious over cash prices the next few weeks. Beef demand may be slowing. |
| 3) | Hog futures are oversold and ripe for a technical bounce. |
3) | New contract lows Tuesday on some hog contracts do not provide support for the market. Traders remain apprehensive about buying into the market aggressively. |
| 4) | Lower prices should cure lower prices as both domestic and international demand for pork might increase. |
4) | Hog supplies remain sufficient for demand, leaving packers with plentiful hogs for slaughter. Farms continue to move hogs as waiting a week or two for a higher cash price does not provide any benefit. |
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