Bullish Cattle Traders Still Have Their Feet on the Gas, But $5 Gasoline Threatens to Collapse Prices

June live cattle (LEM26) futures on Friday fell $1.00 to $253.00 after hitting a contract and record high early on. For the week, June cattle were up $7.775. May feeder cattle (GFK26) Friday futures fell $1.25 to $371.40 and hit a contract high early on. For the week, May feeders were up $10.50.

The live cattle and feeder cattle futures markets saw some mild profit-taking pressure on Friday, but bulls had a very good trading week amid sharply higher cash cattle trade that developed after mid-week. The USDA at midday Friday reported active cash cattle trading, with steers averaging $255.02 and heifers $254.75. That compares to the prior week averaging $246.18 in cash cattle trading. 

Supply and demand fundamentals remain overall bullish for the live and feeder cattle futures markets. Dry weather in the southern Plains is threatening cattle herd growth just as the outdoor grilling season is under way, suggesting better consumer demand for beef. Beef packer margins have improved recently but are still in the red. Also price-friendly for cattle futures is that there are renewed concerns regarding New World screwworm amid cases on the rise in Mexico. The U.S.-Mexico border remains closed to cattle entering the U.S.

Historically tight fed cattle supplies on feedlots will continue to favor feedlot operators in their cash negotiations with packers in the coming weeks, especially with the outdoor grilling season on the doorstep. 

A worrisome element for cattle market bulls and for cattle producers is retail gasoline prices that are around the $4.40 level per gallon. If gasoline prices tick closer to $5.00, consumer confidence will be dented and that could translate into reduced demand for higher-priced beef cuts at the meat counter. However, with U.S. stock indexes at or near record highs, such indicates consumer confidence in the coming months could remain solid.

Lean Hog Futures See Bearish Charts 

June lean hog (HEM26) futures on Friday fell $1.00 to $101.275 and for the week were down 62 1/2 cents. The hog market bulls fizzled to end the trading week, after showing some impressive but brief strength at mid-week. Friday’s technically bearish weekly low close sets the table for follow-through, chart-based selling pressure early this week, as June lean hogs are in a bearish price downtrend on the daily bar chart.

The latest CME lean hog index is up 10 cents to $91.41. Today’s projected cash index price is down 11 cents to $91.30. The national direct five-day rolling average cash hog price quote for Friday was $92.26. 

Wholesale pork market fundamentals continue to lend support to futures, though cutout value has not yet increased in anticipation of seasonal grilling demand. The CME lean hog index weakened lately. However, seasonal slaughter levels will start to decline as grilling demand increases. This could prompt the lean hog futures bulls to better contemplate playing the long side in the coming weeks.

Historically high beef prices at the meat counter could also provide better substitution demand for the more economical pork cuts at the meat counter in the coming months. On the export front, demand for U.S. pork has been less than robust. Improving relations between the U.S. and China in the coming months would likely mean better demand for U.S. pork from China. However, recent reports from China indicate that the nation is presently dealing with a glut of pork supplies.

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