Cattle did not capitalize on the bullish Cattle on Feed report Monday, making it a a classic buy-the-rumor, sell-the-fact scenario. The weakness on Monday does not mean the top is in, as the April contract is holding a discount to cash and cash is expected to be no worse than steady this week. Packers were able to purchase a significant amount of cattle last week, but the amount for deferred delivery was light, which may mean they will need to be aggressive this week to buy what they need. Boxed beef prices were higher with choice up $1.65 and select up $3.96. Demand is holding even at the higher beef prices. Packers will not be aggressive early in the week but will wait to see if feedlots will offer more cattle this week before placing bids. Feeder cattle futures closed with minimal losses after opening significantly higher. Feeder cattle demand remains strong with higher prices being paid.
Hogs could not get the attention of buyers Monday with futures falling back to the bottom of the range. Fortunately, futures did not remain at the lows but bounced to minimize technical bearishness. Fundamentally, the market is struggling to search for support in cutouts, which would indicate stronger demand. The National Daily Direct Afternoon Hog report showed cash up $1.89, which was unusual for a Monday. Pork cutouts were up $0.51. This combination may provide support Tuesday, but it will take continued gains to establish an uptrend and turn traders bullish.
| BULL SIDE | BEAR SIDE | ||
| 1) | The numbers on the Cattle on Feed report indicated the bullish posture of the cattle industry. This will not change anytime soon. |
1) | Cattle futures may have had the bullish Cattle on Feed report factored in and it is now correcting to find an equilibrium to the current fundamentals. A further retracement is possible. |
| 2) | Some long-range forecasts indicate the potential for a drought in some cattle areas this summer. That could curtail rebuilding of the cattle herd. . |
2) | Consumers may reduce beef purchases as prices are very high. They may find alternatives as food prices in general continue to increase. |
| 3) | Packers were aggressive buyers of hogs on Monday. That may indicate good demand was seen over the weekend. |
3) | Pork has yet to benefit significantly from high beef prices. Cutouts remain variable having difficulty finding support. |
| 4) | The rebound of hog futures from the lows on Monday was a good sign that traders are not overly bearish on the market. |
4) | Hog futures need to find technical support soon or there could be further liquidation pressure on the market. |
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