GENERAL COMMENTS:
Traders took a step back in the cattle market Monday as they held back from aggressive buying, waiting to see further fundamental developments. Feedlots believe they will be able to obtain more money as the market is strong with tight supplies. Feeder cattle prices continue to climb as demand is high. Technical traders may be anticipating prices could move to contract highs, which then may be a selling opportunity again. However, with the current bullish mindset, futures could push through the highs, triggering renewed buying interest. One has to wonder how long consumer demand will remain strong. Consumers have not reached a threshold for prices. Boxed beef prices closed higher on Monday, with choice up $2.00 and select up $3.22.
Hog futures continue to show surprising strength. It seems some traders have been purchasing and holding for the long term, anticipating demand will improve through the summer. Futures have increased substantially since the low, but are not in an overbought position. This could keep buying interest strong. The National Daily Direct Afternoon Hog report showed cash up $0.24. Packers are expected to be aggressive Tuesday as they need hogs to maintain their slaughter pace. Pork cutouts were down $0.61, but that was not bearish considering the $4.22 increase Friday.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cattle market likely has the Cattle on Feed report factored in. The fundamentals remain bullish with traders looking for higher prices. |
1) | Cattle futures have recovered most of the loss since the tariff news at the beginning of the month, but are nearing technical resistance, which may be difficult to penetrate. |
| 2) | Contract highs are not far away and, if exceeded, renewed buying interest will develop. Beef prices have yet to see consumer resistance. |
2) | International demand may slow as beef prices remain high. Packers may reduce slaughter as cattle weights are high. |
| 3) | Hog futures may continue to grind higher as traders anticipate improving demand. |
3) | Hog futures may run out of steam without continued fundamental support. Futures have been supported technically. |
4) |
There is a chart gap remaining above the market for February. It may take a monumental effort to close the gap, but gaps generally are closed. |
4) | Packers have not had to bid aggressively to obtain the hogs they need for slaughter. Supplies remain readily available |
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