The swine virus which has killed near 100 in Mexico and is spread to the US and Canada has had a very negative impact on outside markets for cattle overnight and the cattle market is likely in a position to have to absorb significant new selling for at least today. Fears that the virus will cause a significant slowdown in the economy and that consumer demand for red meat will be lower; at least temporarily helped to pressure the market overnight. Weakness in beef prices on Friday and ideas that meat demand will slide this week are seen as bearish forces. June cattle saw two-sided trade with some concern that beef volume is slowing helping to limit the support on Friday. The market sold off sharply late in the session, threatening the April 20th low in the process. Talk that warmer weather could spark better retail clearance this weekend helped to provide some underlying support early, but a weaker tone to the beef market after the recent surge along with hefty deliveries late last week helped to limit the buying support. A $4.50 discount of June cattle to last week’s cash trade in Texas was seen as a factor to help support. However, the weekend news should be enough to case a short-term down in demand which could shift packer attitudes about paying up for live inventory. The estimated cattle slaughter came in at 115,000 head Friday and 24,000 head for Saturday. This was at the low end of estimates and could be seen as a negative signal for packer demand. This brings the total for last week to 640,000 head, up from 606,000 last week at this time but down from 702,000 a year ago. Boxed beef cutout values were down $1.39 at mid-session Friday and closed $1.48 lower at $151.94. This was up from $149.20 a week ago. The Commitment-of-Traders reports on Friday showed a slight selling trend from trend-following funds who shifted from a net long to a net short position of 68 contracts. The selling trend (sold a net 1,003 contracts for the week) is seen as a negative force. Index funds were light buyers. There were no deliveries this morning.
TODAY’S GUIDANCE: With the discount of futures to cash, the swine flu impact may not be as great as in hogs but the demand concerns are likely to pressure the market early this week. With so many uncertainties ahead, long and short traders are likely to consider stepping aside and the initial break on concerns for reduced red meat consumption could be significant.