Lean Hogs Gained: Hogs posted a mostly higher close, led by strong gains in the spot February contract. The back months seemed content to trade spreads rather narrowly after the minutia of the Pig Crop was dissected. Concentrating here on the February contract, prices just came off recent new contract lows that were a function of a pork trade that went comatose as hams were seasonally pummeled (32¢ to 35¢ per lb. now certainly seems cheap) and even as Canada hog imports lightened up, as domestic pork demand turned limp. Pork exports perhaps have been dragged down by the global economy but have held up better than the beef. Another problem for the pork is poultry. Chicken exports have stalled hard and are backing up into our retail channels to challenge pork sales to a degree. In a different time and place, the Pig Crop and past Cattle-On-Feed reports would have been accepted by more bullishly open arms. As it is, the market has seen a many attempts at a bottom but ultimately failed. Nonetheless, like the February cattle, today's action was a bit encouraging: prices dropped within spittin' distance of contract lows ($58.90) and recovered strongly to close at $60.95, up $1.22. Part of that is short covering and part is a surprisingly strong western interior/I-M, up $2.70 to $3.00 respectively; though I would tend to believe a packer or two reached for what little free-hog supply was available and so did not spend all that much money for just a limited number of head. 'Tis a holiday after all. The near-term and long-term trends have remained technically down. The bigger picture bear defense area I use are the major moving averages at $62-83-62.97 on a close over to turn the charts near term neutral. We can all hope for a brighter outlook for the meats, but under the current economic conditions here and abroad, a recovery of substance may be in order but a bear to longer bull market will take some time to determine.
~John Kleist
Live Cattle: Cattle trade saw the December contract expire at $84.47, down $1.40 and reflected perhaps the current and persistent theme of recessionary concerns. The other months closed mixed in a choppy, light volume day. The saga of cattle has been this: supply bull (as per cattle numbers available vs. yr.) meeting a demand bear (recession amid strongly rising unemployment. In this type of meeting, demand wins. There is an old saying in the meat market of "sell it or smell it" and packers that would prefer the former rather than the latter even if at a loss. Cutting back kills even more to limit packer losses via higher beef prices is a two-edged sword. If retail demand is limp at these levels, higher prices certainly cannot help that demand. What to do? Obviously, the packer is in the 'controlling inventory' mode to try to balance cattle kill with beef demand (an imbalance shows up in an increase in the beef cold storage report many times). One significant way to help the packer keep a floor under the live is the exports. Regrettably, the last month or so saw a decline in bare minimum beef exports (last week weekly-beef exports sales were a (-) minus, as '08 sales were carried over to sometime in '09). I alluded to the domestic recession above, the export sales are perhaps a reflection of the global recession. Hence cash cattle will do well to hold in the low $80.00 area until the demand for beef improves. Technically, Feb. cattle has been in a near month-long upward move but still well in the confines of a broader bear market chart. Earlier today Feb. broke under its near term trend line support at $85.82, hit some sell stops but recovered back to close at $86.00 up $.10. The recovery was tenuous, but supportive. Of more significance - I would look at a close over major m/a resistance at (currently) $87.92-88.25 as a bear defense area.
~John Kleist
John Kleist is an agricultural commodity specialist at Allendale Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.
