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The market seems to be trying to avoid the Russian poultry situation, but this will be a difficult task. US broiler producers are expanding as evidenced by “eggs set” data for the most recent week showing the largest increase over the previous year since early 2008. A 2% increase in poultry production may not usually be a big deal, but this is happening at the same time that the export market has lost its largest customer, Russia, which represented 23% of total US poultry exports from January to November 2009. Russia has effectively banned US shipments of poultry by banning meat treated with too much chlorine. And as of February 12th, Russia is also banning meat imports from specific plants, including a North Carolina turkey operation, and plants from Brazil and Finland. Traders continue to believe that the bans will be lifted soon, as soon as Russia sees the need for more imports. April cattle closed slightly higher on the session yesterday after choppy and two-sided trade. A bounce in beef prices and ideas that cattle weights will decline due to the recent poor weather lent support. Snow/rain in the plains is expected to cause muddy feedlot conditions, which could stress cattle. A lack of cash trade (and direction) this week in the southern plains has helped keep the trade choppy. The estimated cattle slaughter came in at 121,000 head yesterday, which was a little bit below trade expectations. This brings the total for the week so far to 370,000 head, down from 374,000 last week at this time and down from 372,000 a year ago. Boxed beef cutout values were up 34 cents at mid-session yesterday but closed 15 cents lower at $139.78. This was down from $140.47 a week ago and the lowest level since January 6th. The most recent Commitments of Traders report (as of January 26th) showed the market in an overbought condition with the non-commercial traders (funds) and the combined non-commercial and non-reportable positions both at record highs. For that reason the market looks vulnerable to increased speculative selling if support levels are violated.
TODAY’S GUIDANCE: While cattle have the supply fundamentals to see a rally into the spring, the short term situation is bearish, as high open interest, fund positioning, meat export interruptions, potential curtailments in bank commodity trading and the potential for China continue to follow a “tightening path” are all factors which might spark a short term sell-off. April cattle resistance comes in at 89.95 and 90.27. Look for resistance to hold and for a continued downtrend, with 88.20 and possibly 87.47 as next downside targets.
