Cattle futures closed lower for the week as market sentiment seems to have changed. Futures have struggled to sustain price strength on some days. Boxed beef prices have shown more sustained weakness since the holiday. Boxed beef prices were lower on Friday, with choice down $0.85 and select down $2.40. Cash cattle traded lower, with Southern live cattle averaging $3.00 lower and Northern dressed cattle $5.00 lower. Packers were not aggressive with cash nor were they aggressive in volume last seek. Either demand is slowing noticeably or packers are pulling back due to their margins being significantly in the red. Some new cases of the New World screwworm (NWS) have been found about 55 miles from the U.S. border, which will continue to keep the border closed for cattle imports. Increased daily trading limits will take effect today. The daily limit for cattle will be $8.50 with an expanded limit of $12.75. Feeder cattle will have a daily limit of $10.25 with expanded limits of $16.00. The Commitment of Traders report showed fund traders reducing their long live cattle position by 7,205 to a net long of 120,542. Funds were net sellers of 7,856 futures contracts in feeder cattle, reducing their net long to 10,963.
Hog futures eliminated the gains realized during the week, with contracts falling back to the lows. Packers were not aggressive last week, with a light cash trade on Friday. The National Daily Direct Afternoon Hog report declined $0.41. They may need to step up more aggressively this week and may begin buying early. Pork cutout values were higher, but that had little impact on the market. Futures declined to and closed at or near support. This could generate short-term buying interest as traders attempt to buy off of technical support to make a quick profit this week. The Commitment of Traders report showed fund traders liquidating 21,378 long futures contracts. They are holding a net-long position of 1,432 contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | Live cattle futures hold a significant discount to cash. This will not be sustained with futures potentially increasing. |
1) | Increasing daily price limits may cause an increase in liquidation as margins will increase and speculators will have more risk. |
| 2) | August feeder cattle have a chart gap above the market that will be filled at some point. |
2) | Boxed beef prices show signs of weakness as demand may be slowing. |
| 3) | Hogs moved back to support on Friday. Traders may buy in anticipation of a short-term trade to take a quick profit from the market. |
3) | If hog futures are unable to find support at the current level, further liquidation could unfold. |
4) |
Packers may be aggressive to begin the week, as buying was light last week. They may need to step up more aggressively. |
4) | Fund traders are nearly net short in the hog market, where it has not been for some time. The sentiment of bearish. |
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