Livestock Futures Commentary
Cattle futures rolled over on Thursday and Friday, with April fats leading the way. This goes against conventional wisdom and basic common sense. We did make the argument to sell deferreds last week, based on the spike in demand being short live, with freezers full and unemployment rising. The fact that April came off so hard is the head-scratcher. Potentially there are still lingering concerns of plants working on a reduced capacity or shut down (as we have seen in other countries). The other possibility is trend-following funds, but even then, they would likely look passed April and at the deferreds.
Early indications are for a flat to slightly lower open, but that can change quickly. In this environment, technicals are still fairly useless. We do have expanded limits for fats and feeders today. Friday’s Commitment of Traders report showed funds short about 3k live cattle at 1.5k feeder cattle. Funds don’t typically hold short cattle positions for long, but this is far from a “typical” environment.
June lean hogs made new lows on Friday as trend-following funds continue to press the pedal to the metal. There’s not a clear indication of how things will open yet, but we expect the volatility to continue. The bears remain in full control and rallies will likely be sold until the bulls can achieve consecutive closes above technical resistance.
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