GENERAL COMMENTS:
Traders did not have a specific direction in the market Tuesday, resulting in futures drifting lower. There is anticipation for higher cash trade but it seems traders may wait for confirmation before choosing a direction. Boxed beef prices this week have been mixed, possibly indicating demand may be slowing slightly. Choice cuts were up $0.79 with select down $0.42. No bids or offers have been posted and none had been expected. Nothing usually takes place until midweek. Even if buying by the packers last week seemed light, they may not be aggressive if they see an indication of demand beginning to slow. Feeder cattle futures pushed higher early but ran out of aggressive buyer interest as the day progressed. Auction prices are variable, but remain strong.
Hog futures found no support Tuesday with some months touching contract lows while others made new contract lows. The selling has been relentless and brutal since late April. Futures are the most oversold I have seen in a long time. Traders have no reason to liquidate their short positions without support from the physical market. The National Direct Afternoon Hog report showed cash down $1.08 with a weighted average of $87.50. The packers may have purchased a sufficient supply of hogs, leaving them less aggressive the rest of the week. Cutouts were substantially higher, posting a gain of $3.23. Bellies jumped $16.08 with strong prices in loins and butts. This may provide some support to the market Wednesday.
| BULL SIDE | BEAR SIDE | ||
| 1) | If cash cattle trade is at least steady this week futures should increase, reducing some of the discount to cash. |
1) | Even with the idea that cash cattle may trade higher this week, traders are taking a wait-and-see attitude. The potential for slowing demand is a concern. |
| 2) | Feeder cattle remain in demand at auctions with continued tight supplies. This is not expected to change anytime soon. |
2) | The inability of cattle futures to move higher Tuesday may indicate upside potential is limited with futures trading sideways at best. |
| 3) | Hogs remain severely oversold with July having a chart gap at $4.00 above the current price. Gaps generally are filled at some point. |
3) | Hog futures posting new contract lows does not bode well for the market. Cash hogs are higher now than back at the previous contract lows, showing the extreme bearish attitude over demand. |
| 4) | The substantial gain in cutouts Tuesday may indicate low pork prices are stimulating demand. |
4) | June and July are generally our strongest months for hogs. The June contract goes off the board on Friday providing limited hope for a strong price rally for July. |
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