It was not surprising to see a price retracement Monday after the incredible run higher in livestock futures. Traders remain bullish on the market, but this lofty level increases the concern over the amount of upside potential remaining. Traders want further confirmation that higher prices will unfold and may wait until cash cattle trade before deciding direction. The idea is that cash will trade higher this week as the packers still seem short-bought and the slaughter pace has improved. Boxed beef prices were higher with choice up $0.51 and select up $3.43. The choice/select price spread is now at $15.78. Feeder cattle remain in strong demand and are holding a large premium to live cattle. Higher corn prices may have impacted futures to some extent. The Commitments of Traders report showed fund traders adding 13,288 long futures to increase their net-long positions to 144,486 contracts. They added 4,248 futures contracts to feeder cattle, bringing their net-long position to 24,592 contracts and a new record-long futures position.
Hog futures closed higher Monday but lost the early luster that was prevalent for much of the day. Cash provided some support but cutouts were negative. There was little for traders to get excited over with the rally potentially finished unless there is further underlying support. The National Daily Direct Afternoon Hog report showed cash up $0.14. Packers are expected to be aggressive Tuesday as they want to purchase early in the week. Pork cutout values were down $1.16. The Commitments of Traders report showed fund traders as net sellers of 11,047 futures contracts, bringing their net-long position to 92,860 contacts.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cattle slaughter pace is strong and packers need to purchase cattle to maintain the higher pace to meet demand. |
1) | Feeder cattle futures are at a record-long position which increases the caution over the potential for profit-taking and a retracement. If stops are triggered, the market could pancake lower. |
| 2) | Heavy cattle weights have not been a detriment to the market. This provides feedlots the confidence to hold for higher prices. This has feedlots in the driver's seat. |
2) | Cash cannot trade higher forever and there is the potential for steady cash this week. This could increase the interest of feedlots to sell more aggressively before there could be further price weakness. |
| 3) | Hog futures have had a 3-day rally, bringing prices back up in the previous sideways trading range seen in December. Futures may hold at this level in the near term. |
3) | The lows may have been established in hog futures for the time being but the upside price potential may be limited. |
| 4) | There are indications of demand improvement for pork, which should provide traders with the confidence to hold current long positions and potentially add to those positions. |
4) | Cash hogs continue to struggle as packers bid up when needed and step back once the majority of their needs are covered. There are sufficient market-ready hogs available. |
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