Cattle in Mud Must Be Moved and Everyone Knows It By Dennis Smith
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Thursday January 24, 2019
Cash was higher and not lower yesterday. Recall the cash was called lower on the early reports yesterday dragging futures lower in the process. Futures closed lower but all contracts recovered off their lows. The higher cash should set the tone to “higher” for today. Hog numbers continue to come in lower than expected and product continues to edge lower under the weight of record large production. However, most primal cuts are also seeing excellent demand with supply/demand in a good balance. There’s no fresh news regarding ASF in China (which suggests that it’s spreading like wildfire), nothing fresh on the trade talks and nothing concrete on the government shut down. I can’t read much from yesterday’s volume and open interest either. Volume was 49,800 and open interest was up 1,800 cars. So I’m not sure what drives the market today other than better than expected cash news.
LC futures edged higher yesterday and feeders staged a nice upside recovery from recent losses. Feeders will likely continue to out-perform the LC. We’ve turned negative on the cash steer outlook as the leverage sits with the packer. While the beef is edging higher, impressively, improved margins will stay with the packer. Look for resistance from yesterday’s close in the April up to 12700. The show list is larger this week and feed lot conditions in KS and NE are in the worst shape in a very long time. These cattle have to move and everyone knows it. Frankly, there’s simply nothing from the outside markets to simulate a rally. So we’re adding to current hedges.
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