GENERAL COMMENTS:
Live cattle futures closed higher Monday as there was interest in buying the break. Strong cattle market fundamentals increase the interest in long-term ownership of futures contracts. However, if prices remained at the current levels for an extended time, it would be incredible. Cattle prices do not need to continue higher to maintain profitability. Stability will accomplish a similar purpose. Boxed beef prices were higher on Monday, with choice up $2.32 and select up $1.72. Traders have two things to consider for the rest of this week. One is that the Cattle on Feed report will be released Friday. The other is that packers have been aggressively purchasing cattle for deferred delivery. Of the cattle purchases last week, 40% of those were for later delivery, reducing the need for the packers to be aggressive.
Hog futures were the recipients of spread trading Monday, likely due to cash weakness Friday. However, that may be short-lived as cash rebounded on Monday. The National Direct Afternoon Hog report showed a jump of $4.41 on light volume. Packers usually are not aggressive on Mondays, but they wanted to take advantage of the lower prices and wanted to purchase earlier this week due to the upcoming Memorial Day weekend. Packers are expected to be aggressive again Tuesday. Pork cutouts were higher, posting a gain of $0.97.
| BULL SIDE | BEAR SIDE | ||
| 1) | The fundamentals of the cattle market have not changed and may keep traders interested in buying contracts for the long term. Price breaks will be buying opportunities. |
1) | Packers are surrounding themselves with greater cattle supplies. This may limit their aggressiveness in the cash market, resulting in lower cash. |
| 2) | Boxed beef prices remain incredibly strong and demand may not decrease much after the Memorial Day weekend. Consumers continue to prefer beef. |
2) | Beef demand may slow after the Memorial Day weekend. The high prices may lead to reduced consumption during the summer. |
| 3) | The substantial rebound in cash Monday indicates Friday's decline was an aberration, leaving hog producers holding out for higher prices. |
3) | The supply of hogs remains sufficient for demand, leaving packers less aggressive in the market. Cash may have limited upside potential. |
4) |
Pork cutouts have shown more strength, indicating demand may be improving as the summer grilling season nears. |
4) | Pork cutouts need to see greater consistency in price strength to get traders more excited over long-term price strength. |
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