Bottom in Cash Hogs/Pork: Packers bought cash hogs at higher prices Friday and again Monday. The last three days of wholesale pork have been $.83, -$.50, and Monday afternoon $.80. Seasonally cash hogs make an attempt to retest their late November/early December lows. We have made that move and now appear ready to rebound. The market is also talking of the increase in allowable import quota that Russia has in place for us in 2009. Combine a neutral demand environment with good production cuts due to the 2008 breeding herd liquidation and we remain clearly bullish 2009 lean hog prices. Though February may be priced about right it is still holding a large $10 premium over current cash hogs. A $10 rally into February 14 is about the best we could hope for. Instead we like buying the summer months, which at $81 are about even with 2008 levels. They could be at around a $3 to $5 premium. We are currently long via the June/December spread and will buy futures again if prices fall a little.
Lean Hog Technical Commentary: When hogs couldn't hold above last Friday's high, they pulled back and began filling part of the large gap left on that same day. The past 2-day's highs are just under 62% retracement, a solid resistance level.
Cash Cattle traded higher late on Friday. Prices of $86 and $87 were seen in most areas, which was above $84 to $86 action in the previous three weeks. Lower feedlot supplies will sit with us through April or so. As we have noted in commentaries before, this market is solely interested in demand right now. Last year February futures expired just under $93. February 2009 futures bottomed at $81.60 and are currently $87.55 (a 12% discount to 2008). In other words the market is saying the drop in demand is so drastic it will overcome the drop in supply and give us a 12% discount on top of that. Given the large amount of stimulus money coming and the drop in supply set for the next few months we argue a bottom is in for 2009 cattle futures and most contracts are still undervalued. We have been questioned about feeder cattle futures. If we like the fats should we also be bullish feeders? No, feeders have already rallied more than they need to while feedlot margins are still tremendously in the red.
Cattle Technical Commentary: Cattle's trade range remained below the 50-day Moving Average Monday and below the neckline of the H&S bottom formation. This tells us the market might want to fill the gap before moving higher. We would be a buyer in this gap.
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