Cattle and hogs incredible rise to all-time highs could be setting up for a just as incredible decline, or just a correction.

In the COT legacy report, we see that this past Friday commercials went from -18,200 net-short in cattle to -28,976 net-short. With hogs, commercials went from -33,088 net-short to -35,864 net-short. See the attached weekly charts to see exactly how the Producers (true commercials, our friends the Swap Dealers and Managed Money) are moving around in the meats. On the weekly charts notice the previous highs hit back in 2008. Recall where the dollar was trading back then?

Also, view the daily charts to get a technical perspective of the markets. Cattle has corrected from an overbought condition and ADX shows weakening trend strength. In hogs, the market is just getting into oversold territory. Also, ADX shows no strength to the trend at all.

Keep in mind that grilling season is starting in the northern states; meat demand could go up.

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...

Cattle prices extended their 1-1/4 year rally to an all-time high of $1.22875 a pound, the highest since cattle futures trading began in 1964.

Bullish factors include:

1. Strong foreign demand as the USDA reported that in the four-weeks ended March 24, U.S. beef export sales rose 9.7% y/y.
2. Speculation that radiation contamination of Japan's food supply will lead to higher U.S. beef imports.
3. The USDA’s Jan. 28 quarterly cattle report showing the Jan. 1 U.S. cattle herd down 1.4% y/y at 92.582 mln head, the smallest since 1958.
4. Reduced future supplies after the USDA estimated the number of calves born during 2010 was 35.685 mln, down -0.7% y/y and the fewest since 1950.

Undercutting cattle prices was the increase in the U.S. feedlot herd as of March 1 to a 3-year high.

Fundamental outlook — Bullish — Cattle prices are bullish on strong foreign demand and limited supplies. Bullish factors include the Jan. 28 USDA quarterly cattle report showing the total U.S. cattle herd at a 53-year low, while U.S. beef exports were up +18.9% y/y in 2010. However, the U.S. feedlot herd as of March 1 rose 5% y/y to a three-year high of 11.394 mln head, and February beef in cold storage increased.

Hog prices are just below February’s record high of 95.00 cents a pound, the highest since live hogs futures trading began in 1966.

Bullish factors include:

1. The surge in feed costs (i.e. record corn prices), which may curb expansion of hog herds.
2. The prospects for increased imports of U.S. pork from Japan because of its nuclear crisis, and from South Korea after it removed import tariffs on frozen pork and culled 25% of its pig herds because of foot-and-mouth disease.

Bearish factors include:

1. The quarterly Hogs & Pigs Report showing an unexpected increase in the hog-breeding herd.
2. Speculation China’s attempts to slow inflation will reduce its demand for commodities.
3. The increase in pig litters to a record 9.8 pigs per litter in the three months ended Feb. 28.

Fundamental outlook — Bullish — July hogs have rallied to a new high on strong demand from Japan and South Korea with the 25% drop in its herd from foot-and-mouth disease, along with strong technicals. The quarterly Hogs & Pigs Report (March 25) showed a +0.5% increase in the hog breeding herd to 5.788 mln sows, but record feed prices likely are to cause herd reductions going forward.

You can follow me on Twitter at http://twitter.com/TrendsinFutures.