There seems to be no ceiling in the cattle market. New contract highs and strong gains keep traders bullish. The market is overbought, but traders do not seem to care. Managed money traders have a record-long position in feeders and may have the same in live cattle by this time, but traders do not care. The strength of boxed beef and the strong potential for higher cash cattle this week are driving the market higher. One would think oxygen is getting thinner at these levels, but until demand slows and cattle supplies loosen, who knows where prices will go? Boxed beef was higher on Tuesday with choice up $2.37 and select up $1.41. Slaughter is running lighter, but cattle weights are higher. The bi-annual Cattle Inventory report will be released on Friday and is expected to show bullish numbers.
Hogs have followed cattle higher but not to the same extent. New contract highs were made in the June through October months. June and July pushed back above $104 as traders are buying for the long term. Packers were aggressive on Tuesday with the National Daily Direct Afternoon Hog report up $3.93 and the weighted average price at $84.32. Pork cutout values declined $0.30. The more aggressive nature of packers over the past two weeks might indicate hog numbers have tightened a little and they are more aggressive to purchase what they need. Further gains are expected in futures Wednesday as the trend is higher. The April contract is poised to break above technical resistance at $91.25.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cattle market is bullish and without negative news there may be nothing to slow it down. Prices may continue to climb. |
1) | The cattle market is overbought and any negative news could trigger profit-taking. |
| 2) | Cattle numbers are tightening and that will continue for some time in the future. The cycle to rebuild may take 2 to 3 years. |
2) | Historically, when a market moves rapidly higher and it moves to levels outside the realm of normal, the market generally falls faster than it rose. Once liquidation begins, cattle traders may sell quickly. |
| 3) | Hogs are in demand and the packers are aggressively purchasing them to fill slaughter needs and pork demand. |
3) | It seems much of the increase in hog futures is due to the perception that pork demand will improve and not by the current cutout values. |
| 4) | New contract highs in some hog contracts should bring in more buying interest as traders feel confident over higher prices. |
4) | Hog futures may have difficulty moving higher without the further indication of stronger prices. |
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