GENERAL COMMENTS:
The numbers on the Cattle on Feed report were surprising to the trade making it an interesting beginning of the week. The number of cattle on feed was one percent below the average trade estimate at 101%. Placements were 4.8% below the average trade estimate of 88%. Both the on-feed and placement numbers were below the bottom of the range of trade estimates and would make it bullish for futures. However, marketings came in at 86% which was 3% below the average trade estimate and below the range of estimates making it bearish. Taking it as a whole, the report seems to be neutral to slightly bullish. The knee-jerk reaction to the report should be a higher opening today. Support may be seen from the fact that Southern cash cattle traded at steady money last week while Northern cattle traded $1.00 lower. This was much better than had been anticipated earlier in the week. Boxed beef prices were mixed with choice down $0.13 and select up $1.56. The Commitment of Traders report showed funds selling 5,104 live cattle futures contracts reducing their net long positions to 37,032 futures contracts. Fund sold 1,838 feeder cattle contracts reducing their net long positions to 4,181 futures contracts.
Hog futures had an impressive day posting triple-digit gains in contracts through October. The strength was not supported by cash as the National Direct Afternoon Hogs report showed a decline of $1.29. This more than offset the slight increase in cutouts of $0.13. The strength on Friday quickly moved futures above the recent sideways trading range that had developed. Further short-covering and additional buying interest may develop today. The packers may hold back seeing how pork movement was over the weekend before actively buying hogs. However, increased slaughter should keep them active this week. The Commitment of Traders report showed funds reducing their net long positions by 5,096 contracts to a net long position of 88,008 futures contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | The on-feed cattle numbers as of August 1 of one percent below the trade estimates should support futures. |
1) | Lower cattle marketings in March may have been due to lower cattle numbers but more likely the impact of packers reducing chain speed. |
| 2) | Placement in feedlots in March was 4.8% below the average trade estimate and the range of estimates should support the market. | 2) | Traders may look past this report and focus on current demand and the economy. |
| 3) | The strong breakout of hog futures above the recent sideways trading range may result in further short-covering today. | 3) | Without the support of cash and only minor support of cutouts on Friday, hogs may slip back into the recent trading range. |
| 4) | Strong pork demand and increased slaughter may keep packers aggressive this week. | 4) | There could be some unwinding of spreads between the nearby and the differed contracts after the aggressive trading on Friday. |
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