Written Commentary
CATTLE
While technically overbought and still operating under the negative influence of Monday’s key reversal, the cattle market seemed to hold shallow support on the selloff yesterday. April cattle closed slightly lower on the session but up sharply from the early lows. The market experienced significant selling pressure early in the day on follow-through technical selling from the key reversal. Ideas that the premium to the cash market is a bit too wide helped pressure the market early in the day. In addition, traders remain concerned over too much dry weather in the central and southern plains which could eventually force an increase in cow and non-fed cattle slaughter into the spring which is bullish for later this year but bearish for the spring.
HOGS
The hog market remains in a strong uptrend with surging open interest but has reached an extreme overbought condition, and also is trading at an extreme premium to the cash market. Packer profit margins are strong due to recent strength in pork values, and packers are having to bid up the cash market to fill needs. Packers have the incentive to push as many hogs as possible through the pipeline. April hogs have hit contract highs in five of the last six trading sessions and the market posted a new contract high at 104.67 yesterday. Continued talk that packers are in need of live inventory and strong pork values have helped to support the rally. The CME Lean Hog Index as of February 4 was 85.87 up from 84.30 the previous session and 82.15 the previous week. The USDA pork cutout, released after the close yesterday, came in at $95.64, down 25 cents from Monday but up from $91.66 the previous week.
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