GENERAL COMMENTS:
Live cattle futures posted strong gains during the day Thursday as the October and later live cattle futures made new contract highs before slipping back. The inability to hold may have been due to substantial pressure in the equity markets, which increased the uncertainty of a recession. This did not change the minds of feedlot owners as they held for higher cash, which resulted in no cash cattle being traded during the day. It is difficult to know whether the packers need to be aggressive this week or if they can hold and purchase less cattle to manage costs. Boxed beef prices were lower with choice down $1.41 and select down $0.06. This weakness should not have an impact on cash. The new contract highs in both live and feeder cattle futures keep technical traders active. Fundamentally, the market has strong support.
It appeared hog futures were finding support and consolidating, but that was eliminated on Thursday as futures came under pressure. Some of the pressure stemmed from weekly export sales being the lowest this year at 20,300 metric tons, down 52% from the previous week. Some of the pressure came from the large decline in the equity markets and the fear of a recession. Other pressure came from packers having most of their needs covered for the week, resulting in lower cash. The combination triggered selling, pushing futures below support. Futures may recover ahead of the weekend as sellers may take profits rather than hold.
| BULL SIDE | BEAR SIDE | ||
| 1) | New contract highs in both live and feeder cattle keep the markets in an uptrend and traders confident over further gains. |
1) | The cattle markets are overbought and could come under pressure ahead of the weekend even if cash cattle trade higher. Gains are already factored in. |
| 2) | Feedlots seem determined to hold for higher cash. The gains last week and higher overall boxed beef prices this week indicate packers may need to increase bids to procure cattle. |
2) | Further weakness in the equity markets may increase the potential for a recession. This could impact beef demand. |
| 3) | The decline in hog futures on Thursday may be more the result of emotion rather than fundamentals. Futures may rebound Friday. |
3) | Pork cutouts remain volatile and have been unable to find support, limiting the price strength of futures. |
| 4) | The hog slaughter pace remains strong and above a year ago, indicating strong demand. Higher weights have not reduced slaughter levels. |
4) | Hog numbers remain plentiful and weights higher, keeping the market well supplied with pork. |
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