You have got to say Wednesday's action in the fed and feeder cattle pits was impressive. Though corn hit limit up and many thought higher would still be coming after that, the worst April fed cattle did was 22 cents lower. The worst March feeders did was down only $1.50 at one point during the day. Part of the support came from recent wholesale beef action. It has posted very good gains every day this week. There is talk circulating perhaps cash cattle will trade steady to $1 higher. If Thursday can see beef cutout gains, then we would join on the $1 higher side. Also we may start hearing from the livestock sector thoughts of a possible good top in corn prices after today's rejection. For now we continue to look for quiet trading in the nearby contracts. For hedging we are happy to report summer contracts of June and August are now 100% locked up. Of any contracts at the CME we feel April may be undervalued (but will not rally until late February) and the June contract is overvalued. We do not feel there is much downside for the far deferred contracts (October and beyond). On the trading end we still suggest the April/June spread is the one to go with and would risk to an exit $1.50 from entry. That would mean a close of negative 50 cents.
Wednesday's hog kill was estimated at 411,000 head compared with last Wednesday's run of 428,000 head. Weather was a support impact to cash hog prices. However, we have to understand what is not killed today will be back at the packing plant door in a few days. For Wednesday's fundamental action there is not much to report. Pork prices are a concern to some but we have to wonder it any wholesale pork weakness is only a temporary problem. Slaughter should continue to seasonally slow down and cash hog and pork prices continue to appreciate. The only real question still remains with the premiums in futures. Will cash hog prices be able to jump enough to those futures prices by each contract's expiration? While we feel higher cash hog prices are coming, we do not feel they will be able to reach the 2007 prices and certainly not above 2007 prices as futures are currently implying (for the May through August contracts). 2008 pork production will fall below 2007 levels around the fourth quarter, so October and certainly December will be above 2007 levels. For now we are letting the pork to China news keep the bulls alive, but will be active in hedging when it appears a top (expected in the next two weeks) is in. Those short $60 April puts will likely expire worthless.
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