GENERAL COMMENTS:
It was a huge turnaround in cattle futures on Tuesday. Feeder cattle posted the greatest gains with the February contract regaining $8.25 of the previous losses. Live cattle futures showed $4.00 gains in some contracts. Traders reacted to the oversold condition of the market and the fact that it was overdone to the downside. The strength was not cash induced as some light trading activity took place as some cattle sold in Texas and Kansas at $175 which is $2 lower than last week. Trading this early in the week is unusual but packers needed to catch up on last week's lighter trade. This may set the precedence for the week, but it is too early to tell. Boxed beef prices were mixed yesterday with choice up $0.92 while select declined $1.45. Traders will try to balance lower potential cash with an oversold market. However, there may be more upside remaining as futures continue to correct.
Hog futures moved higher in response to higher cash and strong cutouts on Monday. The sharp rally in cattle did not have much influence on hog futures as gains remained moderate even though cattle showed strong gains. The stronger cash and cutouts of Monday did not follow through as the National Direct Afternoon Hog report showed a decline of $0.42 while cutouts fell back $3.95. Cutouts were pressured by a decline in all categories of cutouts with bellies down $16.11. This may limit upside potential today as traders will look at the market fundamentals. The market is oversold so further short covering could continue, but uncertain demand might be a limited factor.
| BULL SIDE | BEAR SIDE | ||
| 1) | China recently granted approval for 18 U.S. beef establishments for export to the country. This should improve export capability. | 1) | Early lower cash cattle trade may have set the tone for the week. Packers will take advantage of the recent large decline of cattle futures to pay less for cattle. |
| 2) | A price correction following the magnitude of the sell-off that gripped the cattle market last week could continue today. | 2) | A continuation of the price rally on Tuesday may be difficult to maintain without support from cash and boxed beef. |
| 3) | China recently granted approval for 12 U.S. pork establishments for export to the country. This could increase export business. | 3) | Lower cash and cutouts may limit price strength in hog futures as the market still struggles with demand. |
| 4) | Hog futures found some support from higher cash and cutouts on Monday which could indicate a bottom may have been reached. | 4) | Chart damage has been done in hog futures which may leave traders cautious about buying into the market very aggressively. February futures closed below technical resistance. |
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