A tightening supply of beef, pork and poultry for the next three months leaves the cattle market in a position to move higher if there is any sign of at least steady demand. The poultry industry has seen a significant contraction in the past 15 weeks and poultry production for the next three months or so should come in near 7-9% under last year. US pork supply is down and imports of feeder pigs from Canada are also down sharply so competing supply for beef has tightened. Beef prices are down near 4% from last year which reflects the current weak demand base but with tight feedlot supply (93.8% of last year as of December 1st) any stability or even improved consumer demand could spark a significant rally. February cattle managed to close higher on the session yesterday but April cattle closed lower. Early weakness was triggered by weakness in pork and a surge higher in the US dollar index which helped diminish the supportive tone for exports. Cash markets traded $86.00-$87.00 on Friday which was up $1.00 from the previous week. Ideas that Asia and Mexico exports will recovery at the same time helped support the recent bounce off of the lows and the surge in the dollar helped limit the buying support. Bull spreading helped support the market as well. The estimated cattle slaughter came in at 122,000 head yesterday. This is down from 125,000 last week but up from 112,000 a year ago as this time. Boxed beef cutout values were up 87 cents at mid-session yesterday and closed $1.78 higher at $144.97. This was up from $144.46 a week ago. The Commitments-of-Traders report shows that trend-following or managed funds are net short near 15,000 contracts while index funds were light buyers for the week ending December 30th to increase their net long position to 98,457 contracts. The market looks vulnerable to increased short-covering and new fund buying if resistance is violated.
TODAY’S GUIDANCE: With the commodity markets showing signs of inflation and February cattle trading in line with the cash market, the fact that trend-following or managed funds are net short nearly 15,000 contracts is a potential bullish short-term factor. Open interest has been inching higher in recent days so the market looks vulnerable to a short-covering spurt followed by an uptrend into the late winter.