GENERAL COMMENTS:
Cattle struggled during the second half of the week after China announced the ban on feed from a processing plant in Colorado. There is uncertainty over the duration of this ban and what further testing might show. If other cattle producers use this feed additive there is concern more positive tests showing up. Cash cattle traded lower with Southern cattle trading at $1.00 lower and Northern dressed cattle trading at $3.00 lower. Weekly export sales were not supportive with 15,700 mt sold, down 27% from the previous week. Boxed beef was lower in both categories with choice down $0.84 and select down $0.81. The Commitment of Trader's report showed funds increasing their live cattle long position by 12,199 futures contracts taking them net long 61,762 contracts. They increased their feeder cattle long positions by 2,492 contracts taking them to a net long 6,696 contracts.
Hog futures held for the week without short covering taking place. The end of the month and the weekend did not change the attitude of traders. Strong export sales may have supported the market, but the report did not generate strong buying interest. The National Direct Afternoon Hog report showed cash down $0.46 with a weighted average of $86.90. This was offset by cutouts increasing by $1.30. Pork export sales were strong at 44,400 mt, up 69% from the previous week. Traders did not seem convinced the market had found a bottom and were reluctant to cover short positions ahead of the end of the month. The Commitment of Trader's report showed funds sold 13,104 futures contracts reducing their net long futures positions to 31,067 contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | Fund traders continue to increase their net long positions in cattle futures anticipating continued support for the market. | 1) | Lower cash cattle trade may result in the further weakness of futures. The packers will hold for lower cash again this week. |
| 2) | Beef from the Greely plant being banned may not make any difference as China may increase its purchases from other facilities. | 2) | Traders may increase the liquidation of long futures positions on the uncertainty of the market due to the news of the China ban on the Colorado plant and another dairy worker testing positive for bird flu. |
| 3) | Strong export sales and a continued strong slaughter pace give the impression demand has not slowed. | 3) | Hog futures may have found a level of support, but a price retracement may be difficult to unfold without further positive fundamentals. |
| 4) | Hog futures are significantly oversold and last week's stability may trigger a price retracement. | 4) | The packers will need to be more aggressive in the cash market to overcome the concerns over pork demand held by traders. |
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