GENERAL COMMENTS:
Cattle futures closed higher as short covering and some new buying interest remained prevalent in the market. With cash trade prices likely set for the week, the discount to cash may provide further gains in futures. Cash cattle trade continued the pattern of the week with Southern trade $2 lower than last week. Trade developed in the North at $4 lower than last week. This is expected to the where business for the rest of the week will take place. Weakness of boxed beef may keep a lid on the potential for futures to rebound. Choice cuts were down $1.14 with select down $2.26. Traders are already looking ahead to next week assessing whether the discount to cash should be maintained or whether futures have further upside potential. Trader positioning for the end of the month has likely been accomplished leaving them focusing on fundamentals.
Hog futures showed surprising strength after the cash and cutout weakness on Tuesday. Wednesday showed further weakness with the National Direct Afternoon Hog report showing a decline of $0.37. Cutout values were also lower, posting a decline of $0.83. With further weakness of cash and cutouts on Wednesday, it may be difficult for hog futures to see much upside price strength today. Packers have been more aggressive early to make up for the holiday week, but they have not had to chase after supply. Some end-of-the-month positioning might continue today.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cattle futures discount to cash may allow for further upside price potential. Cash cattle trade is set for the week. | 1) | Lower cash cattle trade may keep a lid on price potential even though the market remains oversold. Boxed beef weakness may also provide pressure. |
| 2) | A push through and a close above Wednesday's high may open the way for further technical gains. | 2) | Cattle futures may need to close above the highs on Wednesday, which is technical resistance before the buying interest of traders may increase. |
| 3) | Hog futures have a chart gap above the market left from Friday that is within striking distance and could be closed sooner rather than later. | 3) | Hog futures are not being supported by underlying cash or cutouts which may limit upside price potential. |
| 4) | If strong weekly pork export sales are reported, it could provide support to the market as lower prices might increase international demand. | 4) | Hog gained 1.7 pounds for the week averaging 289.7 pounds. This is 4.6 pounds above a year ago. |
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