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Tuesday, April 6, 2021

Tuesday Morning Livestock Market Update - Cash Continues to Support Futures

GENERAL COMMENTS:

Both feeder cattle and live cattle futures pushed to new highs in most contracts. The anticipation for higher cash is giving traders confidence to add to already long positions. Substantially higher boxed beef prices keeps solid support under the market. There is no sign of demand letting up. Seasonally, demand should improve and prices should increase. This year, demand may be greater as stimulus checks and the increasing desire of people to gather outside will increase grilling demand. Cash prices are expected higher this week, but trading will likely wait until the second half of the week. Cumulative beef export sales this year have reached 441,226 metric tons (mt), 89,443 mt higher than the same period last year. The Commitment of Traders report showed funds adding to their long positions. Funds added 3,682 net-long positions, bringing their total net-long positions to 83,237 contracts.

Only April hogs were able to close higher Monday, but not before May through July contracts posted new highs. There is little concern of the market turning bearish. Cash was a bit lower and cutouts were down slightly Monday, but the overall trend is higher. Futures took a breather Monday as traders likely decided to bank some profits. Hogs supplies are expected to tighten, resulting in packers remaining aggressive. The Commitment of Traders report showed funds as net buyers of 2,017 contracts, increasing their net-long positions to 78,112 contracts.

BULL SIDE BEAR SIDE
1)

New contract highs were established in numerous futures contracts. This keeps the trend pointing solidly higher.

1)

Cattle futures hold a strong premium to cash. Any slowing of cash strength and traders may liquidate positions.

2)

The huge increase of boxed beef prices indicates strong consumer demand. Packers will need to bid up to obtain supply.

2)

Cattle are overbought and are ripe for a price correction, which could take place if there is any sign of weakness.

3)

Some hog futures contracts established new highs with only April closing in positive territory. The trend is still up as hog supplies tighten.

3)

Hog futures settled back a bit Monday after some contracts made new highs. It was prudent for some traders to take profits in light of lower cutouts. This may continue Tuesday.

4)

The retracement of futures is healthy in a bull market as it relieves some of the overbought technicals.

4)

Slight weakness in cash and cutouts could signal consumer resistance to high price.




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