Lean Hog Fundamental Support
Considering the locked limit lower trade in live cattle, perhaps yesterday's losses in lean hogs were not too bad. Also we had another short slaughter yesterday of only 371,000 head. The last thing we need right now are continued slaughter setbacks.
As noted in the AM comments though, last week's slaughter problems only offset a portion of the net decline in supplies that continues into spring. It only mitigates some of potential upside in cash.
One thing that we can agree on with bears is the deferreds may not see a lot of upside here. Summer futures are over our $78 price. We can also agree with bears in their assertion that end users will do all they can to get back margins. We don't think they will be successful but there is a clear effort here.
Live Cattle Fundamental Support
By itself Friday's cash cattle trading did not warrant anything close to limit down live and feeder cattle futures. Cash traded at an average price of $135 on Friday from a range of $132 to $136. That was down from the previous week's $138 average. The market, and ourselves, were expecting one last week of higher pricing before lower cash moves in February.
Combined with a lower stock market and more stories about world economic uncertainty though, cattle futures went on a run. Every 2016 contract closed limit down. At one point yesterday the Dow Jones Industrial Average was 401 points lower. As stocks recovered from that price in the afternoon we would not expect another limit down for cattle today. If we get a lower live cattle futures open today, we may be moving into deeply undervalued territory.
There is no doubt that end users will try to regain as much of their lost market share as possible here. They have been pushing back against that rally in January in the past couple of weeks pretty hard. We don't look for a massive rally here, only for the market to realize we are getting a bit out of hand here.