GENERAL COMMENTS:
The June live cattle contract holds a discount to cash and cash trading this week will determine whether June will break above the sideways trading range or remain entrenched in it. Cattle have not yet traded, leaving traders guessing as to what will take place. Higher boxed beef prices could increase packer bids but they may continue to hold back as reduced slaughter is improving margins. Demand will need to be met but cattle weights are higher, requiring few cattle for the required tonnage. Boxed beef prices were higher with choice up $2.38 and select up $0.49. It may take more than higher boxed beef prices to increase packer bids. There are sufficient cattle available for demand. Weekly export sales will be released Thursday, but may not have much influence.
Hog futures have been unable to garner aggressive buying interest, leaving futures floundering at the lows. The packers were not aggressive on Wednesday with the National Daily Direct Afternoon report showing cash down $2.10. Cutout values were slightly higher with a gain of $0.19. Slaughter remains brisk, which indicates demand is strong but that is not reflected in futures. The packers may not be aggressive in the cash market again Thursday, seeing if they will be able to purchase more hogs without having to bid up for them. If they cannot get a sufficient number purchased, they will raise their bids. Weekly export sales may provide dome direction. Saturday slaughter is estimated at 35,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) | June cattle futures hold a substantial discount to cash which may need to be reduced if cash prices remain near the current level. |
1) | Cattle weights continue to increase as packers maintain a slow slaughter pace. Heavier weights mean fewer cattle need to be purchased. |
| 2) | Improving boxed beef prices may require packers to bid up for cattle and increase slaughter. |
2) | Live cattle have yet to break out of their sideways trading range. Futures will need more bullish news to turn the trend higher. |
| 3) | Hog slaughter remains strong with packers actively purchasing; higher bid may be needed to obtain the required number for the week. |
3) | Hog futures have yet to find solid support. Futures are oversold but may remain that way unless the demand outlook improves. |
| 4) | If weekly export sales are good, it may be the catalyst needed for traders to buy futures more aggressively. |
4) | The packers continue to find sufficient hogs to satisfy the higher slaughter level without being aggressive with cash bids. |
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