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The market appears overbought and vulnerable to a significant set-back if there is not progress on poultry exports to Russia and China soon as poultry could start to clog the pipeline. Traders have shrugged off talk of poor retail and restaurant demand on the East Coast and also talk of building poultry inventories in the US due to trade disputes. As a result, any new news to end the Russian dispute with US poultry is not likely to provide much support. There has been some progress this week and Russian agencies have invited the US to send a delegation to Moscow as soon as they like to begin a second round of talks. April cattle closed unchanged on the session yesterday after choppy and two-sided trade. The market managed an early rally to the highest level since June 12th before drifting lower on the session. While the weather has disrupted supply and could cause lower than expected production in the weeks ahead, traders are getting more nervous over potential slower demand due to storms and higher alternative meat supply and these demand factors may have limited the buying support. Average dressed steer weights for the week ending January 30th came in at 836 pounds as compared with 855 pounds last year. Beef production for the same week came in at 485.5 million pounds, down 2.4% over year ago. Slaughter that same week was down just.3% so we can see the significant impact on production in years in which weights are lower. Traders see a further drop in weights for the first two weeks of February which may help provide some underlying support due to the tighter supply. Weights typically fall sharply in March and remain in a downtrend into May. However, demand is a growing concern for the market and traders will continue to monitor the beef market for clues on demand. Boxed beef cutout values were up 43 cents at mid-session yesterday and closed 40 cents higher at $139.17. This was up from $138.71 a week ago. Prices have remained mostly steady in a period of declining supply in the last month. The estimated cattle slaughter came in at 121,000 head yesterday. This brings the total for the week so far to 481,000 head, down from 489,000 last week at this time and down from 498,000 a year ago.

TODAY’S GUIDANCE: Watch for a technical sign of a near-term top. April cattle still has an upside objective of 92.40 but closed poorly yesterday and traditional technical indicators are at overbought readings. There is some resistance at 91.60 with 90.60 and 90.20 as support.

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The market seems to have the supply fundamentals to push higher but it may take a better demand outlook to turn the trend back up. Too much poultry production is a growing problem for pork values and weakness in pork values this past week during a period of lower supply should be a concern for the bulls. The slower than expected marketings of hogs due to weather has some traders nervous that marketings could pick-up soon and weights could tick higher but this has not been the cash so far. Production has been lower than expected and weights have also been down and this has brought about talk that lower quality corn has slowed weight gains. April hogs pushed lower on the session yesterday as the early weather-related rally failed to attract new buying interest. Weather helped support lower marketings and higher cash markets but traders see lower cash markets next week when the weather clears. Talk that Russia and US officials are at least looking at proposals helped to provide some support early but there is also talk that the Russians are already arranging different sources for poultry. Strength in outside markets failed to provide much support but the market did manage to close well off of the lows. The CME Lean Hog Index as of February 9 came in at 66.62, up 43 cents from the previous session and up from 66.60 the week before. This leaves April hogs at a slight premium to the cash market. The estimated hog slaughter came in at 417,000 head yesterday. This brings the total for the week so far to 1.658 million head, down from 1.678 million last week at this time and down from 1.689 million a year ago. Pork cut out values, released after the close yesterday, came in at $68.31, down 40 cents from Wednesday and down from $69.15 the previous week and pork values are at the lowest level since February 3rd. Actual US pork production for the week ending January 30th came in at 433.9 million pounds, down from 443.6 the previous week and down -5.5% from a year ago. The previous three full weeks in January saw production down 2.8%, 6.3% and 12.9% lower than last year so production has been coming in below expectations for the past month. For the week ending February 6th, the USDA original estimate is down 3.2%. The market found some support this week from news that the US Poultry and Eggs Export Council has put foreword a proposal to resolve the dispute with Russia. US representatives will now present their proposals to Russia as soon as meetings are set up. Cash looks steady today. Sow slaughter for the week ending January 30th reached 57,784 head, down 11.1% from last year.

TODAY’S GUIDANCE: April hog resistance is at 67.97 and 68.97 with 67.17 and then 66.15 as support. A move through support could spark a resumption of the downtrend with 64.07 as downside objective.

TODAY’S MARKET IDEAS: Look for choppy to lower trade ahead.

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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.

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The market is in a position to rally, but not until the poultry-domestic supply issue is resolved. Extra poultry on the US market due to the loss of export business to Russia will compete with beef and pork at the retail level and could limit any advance over the short term. If the ban continues for any significant length of time, the extra meat appearing on the domestic market will need to be discounted to get sold, and this could help drag prices lower. Russia represented 23% of the total US poultry meat export market from January through November 2009, so the loss of this market is significant. April hogs saw a minor bounce yesterday, as the market continued to recover from the extreme short-term oversold condition after the recent sharp sell-off. A jump in ham prices, which supported cutout values late Tuesday, helped to provide support. February hogs closed moderately higher on the session, with talk of more stable product values and a stiff discount of February to cash helping to support. Declining average weights in the past week and steady to $0.50 higher cash hog markets added to the more positive tone. The CME Lean Hog Index as of February 1 came in at 67.51, down 68 cents from the previous session and down from 70.17 the week before. This leaves April hogs at a slight discount to the cash market with futures normally at a premium of 400-500 points at this time of the year. The estimated hog slaughter came in at 426,000 head yesterday. This brings the total for the week so far to 1.260 million head, up from 1.187 million last week at this time but down from 1.277 million a year ago. Pork cutout values, released after the close yesterday, came in at $67.60, down $1.87 from Tuesday and down from $70.56 the previous week. Weekly average weights for the week ending January 30th came in at 268.4 pounds, down from 269.9 the previous week and down from 268.7 pounds last year. The data is supportive as lower weights could push pork production lower than expected. Traders believe the lower quality corn from the fall is the reason for the slow weight gains. Feeder pig imports from Canada for the week ending January 23 came in at 104,655 head, up from 91,801 head the previous week and compared to a 4-week moving average of 103,769. Feeder pig imports for the year have reached 0.42 million head, up 22.8% from last year.

TODAY’S GUIDANCE: Look for more long liquidation selling over the near term. April hog resistance is at 67.27 and 67.77 with 64.07 as the next downside objective.

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The market looks vulnerable to a continued slide over the short-term. The cold storage report on Friday indicated a strong pork export market in December but that was before the slowdown in US poultry exports and until the Russian poultry situation is resolved, the market looks vulnerable to at least some speculative long liquidation selling. The hog market pushed sharply lower on the session yesterday as a weak tone to pork values and steady/lower cash markets helped to pressure. A record net long position from speculators combined with news of a lack of progress in talks to end the poultry trade dispute with Russia helped spark the selling yesterday and the move under last week’s lows added to the selling pressures. The cold storage news for pork was bullish but the news was bearish for pork bellies and the sharp drop in bellies helped pressure futures. Fears that the pork market has reached a level which would price-out demand has also helped to spark long liquidation selling. The CME Lean Hog Index as of January 21st came in at 70.14, up 62 cents from the previous session and up from 67.80 the week before. The estimated hog slaughter came in at 425,000 head yesterday which was higher than expected and a positive sign for packer demand. This is up from 377,000 last week and up from 422,000 a year ago as this time. Pork cut out values, released after the close yesterday, came in at $75.18, down $2.00 from Friday and down from $75.71 the previous week. This is the lowest since January 14th and the weakness could leave traders concerned that packer margins and cash hog prices could ease in the next few weeks. Keep in mind; pork prices are still higher than at any point in 2009. Traders also see the possibility that “extra” poultry which is not being exported to Russia will show up in the domestic retail pipeline and compete with pork and beef at the retail level. Moving “extra” meat on the market usually means discounting and this could drag meat prices down, at least temporarily. The overbought condition of the market is also a significant concern as the COT reports on Friday showed a strong buying trend from fund traders but both the non-commercial net long and the combined spec net long positions are at a record high.

TODAY’S GUIDANCE: Look for choppy to lower trade until there is a better signal for improved poultry trade with Russia. Support for February hogs comes in at 67.45 and 66.22 with 69.07 as resistance. April hog resistance is at 70.95 and 71.27 with 68.85 and 67.15 as support.

TODAY’S MARKET IDEAS: Consider strategies which will benefit from a short-term correction and a continuation of the bull trend ahead.

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The market is overbought and has absorbed significant new buying from funds and speculators recently but increased fears of a build-up in meat supply if exports slow has helped spark the long liquidation trend of the past few sessions. The cattle market pushed lower yesterday after choppy trade early in the session as the news of a tightening supply from the supportive USDA cattle-on-Feed report from Friday failed to provide for much support. Buyers are on the sidelines as traders remain concerned that domestic poultry supply will gradually swell due to the loss of exports to Russia and that the increased domestic supply will cause beef and pork values to slip. The estimated cattle slaughter came in at 124,000 head yesterday. This was down from 129,000 last week and down from 126,000 a year ago as this time. Boxed beef cutout values were up 23 cents at mid-session yesterday and closed 19 cents higher at $143.40. This was down from $145.71 a week ago. Cash cattle in Texas traded $.50-$1.00 higher on the week Friday at $86.00 and with feedlot supply at a seven year low; the short-term supply outlook is somewhat supportive. Placements of cattle onto feedlots in December were the lowest for the month since 1998. In addition, feedlots moved more cattle off of feedlots in December than expected at 103.5% of last year which means there were less cattle on feedlots to start the year and this was supportive to the February contract. Traders have assumed that the poultry trade with Russia would be resolved quickly but when talks broke down on Thursday with no progress, the market saw reason to sell. Ideas that the market is overbought and talk that the bullish USDA report was already priced helped pressure. The COT reports for the week ending January 19th showed an aggressive buying trend from fund traders. Trend-following funds (hedge funds) bought 17,181 contracts to increase their net long position to 56,558 contracts, a new record high for the data which has been released since January of 2006.

TODAY’S GUIDANCE: Once there is a stronger feeling that Russia will resume poultry imports from the US, the market will be in a position to move higher. However, futures remain vulnerable to a short-term sell-off. Given the overbought condition, new buyers might wait for a significant technical correction before entry. April cattle resistance comes in at 90.42 with 88.92 and 88.20 as next key support levels. Look for more weakness ahead.

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Even after the surge higher yesterday, February hogs hold just a 115 point premium to the cash market. Solid gains in pork cut-out this week should spark more aggressive demand from packers to move as many hogs as possible through the pipeline as profit margins are high. This is exactly what the market needed to clean up any backlog of hogs in the country from the recent long cold spell. Better than expected action in the cash hog market helped spark aggressive short-covering yesterday and new fund buyers were active as well. News of the highest pork exports in November (up 11% from last year) since October of 2008 helped provide underlying support. The market surged sharply higher on the session yesterday with February hogs pushing to the highest level since May 13th. Average weights from Iowa/Minnesota for the week ending January 9th came in at 269.0 pounds, up from 268.3 the previous week and down from 270.6 pounds last year. “Less” pressure than expected in the cash market from the warmer weather in the Midwest added to the short-covering support for the market. Cash is called steady to lower for today. The CME Lean Hog Index as of January 11 came in at 67.82, up 20 cents from the previous session and up from 64.74 the week before. The estimated hog slaughter came in at 425,000 head yesterday. This brings the total for the week so far to 1.274 million head, down from 1.285 million last week at this time but unchanged from a year ago. Pork cut out values, released after the close yesterday, came in at $72.56, up $1.33 from Tuesday and up from $69.12 the previous week. This is the highest pork price since October 6th as cash bellies were very strong.

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The market seems to have posted a near-term low this week for the February and April futures while August has consolidated near the 87.00-88.00 range. The lack of a sell-off in beef prices this week and the move to the highest level in eight months for beef prices has helped to provide support and leaves cash and futures prices looking undervalued. February cattle closed higher yesterday and near the highs after choppy and two-sided trade as strength in the beef market helped support. Cheaper grain prices were seen as a bearish development for June and deferred contracts which closed under some pressure. The surge higher in beef prices is expected to drive packer margins wide enough to spark higher trade in the cash market in coming weeks. Texas cash cattle traded $.50 higher to $85.50 yesterday and this helped support the February futures as well. Beef exports for the month of November came in at 172.6 million pounds, up from 135.9 million the previous year but down near 4 million pounds from October. The estimated cattle slaughter came in at 127,000 head yesterday. This brings the total for the week so far to 379,000 head, unchanged from last week at this time but up from 359,000 a year ago. Boxed beef cutout values were up 79 cents at mid-session yesterday and closed 48 cents higher at $145.43. This was up from $139.45 a week ago and up to the highest level since May 28, 2009. We would believe cash cattle are likely to trade higher next week unless there is a sharp break in the beef market.

TODAY’S GUIDANCE: Packer demand for live inventory should turn strong with the beef rally and short-term bulls might concentrate on the February futures for now.

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We remain positive for the hog market with expectations of rising cash markets into mid-February but are concerned with the potential for a jump in near-term meat supply if Russia bans US poultry for too long. The supply of US pork will be a little higher than expected ahead due to the negative USDA report from last week which showed record high pigs per liter reported for the last quarter. This helped turn the neutral report from the USDA to a somewhat negative report as pigs per liter were up 2.6% from last year. This left the total US hog herd at 2% under last year and down 3.5% over the past two years. Many traders believe that there are still too many hogs around to provide for at least some profitability ahead for producers. However, June hogs are already at 77.50 and demand has dramatically improved in the past six months so the future is very uncertain. February hogs closed slightly lower on the session on Thursday after choppy and two-sided trade. Weakness in the pork product market and a slightly negative USDA Hogs and Pigs report helped to spark some selling pressures but ideas that the cash market will trade higher this week and talk of bitter cold weather in the Midwest helped to support. February 2010 hogs closed 2008 at 70.15 and closed 2009 at 65.60. A firm tone for cattle and talk that pork supplies will tighten into the middle of February helped to support.
The CME Lean Hog Index as of December 29 came in at 62.59, down 8 cents from the previous session and down from 64.42 the week before. The estimated hog slaughter came in at 374,000 head on Thursday. This brings the total for the week so far to 1.678 million head, up from 1.494 million last week at this time and up from 1.243 million a year ago. Pork cut out values, released after the close yesterday, came in at $67.39, up 7 cents from Wednesday but down from $67.86 the previous week. Feeder pig imports from Canada through late December reached 4.95 million head, down 23.6% from the same period in 2008. Cash hogs were higher late last week and are called steady today.

TODAY’S GUIDANCE: Buying support for February hogs comes in at 64.80 and 64.52 with 65.85 and 66.40 as resistance.

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The market saw an impressive upside break-out on Thursday and futures look set for a much more positive year this year. Feedlot supply is tightening after the sharp reduction in placements from November and ideas that the market saw low placements again in December. The winter storms since mid-December have caused significant weight loss and this is likely to tighten the beef supply a little more than expected. December cattle expired on Thursday at 86.00. Cash cattle pushed sharply higher last week to entice the new buying. While the short-term cash situation is supportive from a supply and recent demand situation, traders will need to monitor the demand situation closely as the poultry industry adjusts to the Russia poultry ban. As of January 1st, Russia will follow a new law which prohibits the use of chlorine as an anti-microbial treatment for poultry production. This effectively bans US poultry from entering the country and Russia is the largest importer of US poultry. In 2008, the Russian market was worth near $800 million in sales. Traders believe there is near 30,000 tonnes of US poultry en route or already at Russian ports. If exports slow dramatically, the US consumer will need to absorb the excess and this could hurt demand for US beef. February cattle pushed sharply higher on the session on Thursday and managed a run to the highest level since November 10th. News of higher cash cattle trade last week and ideas that fund traders will be buyers this week helped to support the strong trade. Cash cattle in Texas traded at $85.00-$85.50, up $2.00 on the week in a week in which traders expected steady to $1.00 higher. Weekly US beef export sales for the week ending December 24th came in at 5,900 metric tonnes as compared with 3,500 last week and 5,480 tonnes as the prior 4-week average. This pushed cumulative sales for the year to 500,000 metric tonnes as compared with 520,900 last year and 786,400 metric tonnes for 2003. February 2010 cattle closed 2008 at 91.60 and closed 2009 at 86.17 while nearby futures last year were about the same as this year. The estimated cattle slaughter came in at 98,000 head on Thursday. This brings the total for the week so far to 469,000 head, up from 429,000 last week at this time and up from 349,000 a year ago. Boxed beef cutout values were down 27 cents at mid-session Thursday and closed 29 cents lower at $138.75. This was up from $138.63 a week ago. Average dressed steer weights for the week ending December 19th came in at 843 pounds, down from 850 the previous week and down 0.94% from a year ago. The sharp drop in weights will result in lower than expected beef production for late December and the weather has not improved much since December 19th for most cattle feeding areas so the trend of lower weights could continue. The sharp drop of 7 pounds in just one week also shows the intensity of the weather. Beef production for the same week came in at 486.8 million pounds, down 4.5% over year ago.

TODAY’S GUIDANCE: Except for the Russian poultry situation, the near-term fundamentals look positive. February could begin to find additional pressures from index fund rolling of longs to April or deferred contracts. Support for February cattle comes in at 85.55 with 87.70 as next key resistance.

TODAY’S MARKET IDEAS: While there could be more follow-through buying, the Russia poultry situation could be a major limiting force.