Archive | January, 2010

Metals Market Commentary – 2010.01.29

by on January 29, 2010

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OUTSIDE MARKET DEVELOPMENTS: While a number of international equity markets managed to bounce overnight, one doesn’t get the impression that global economic sentiment has actually improved. In fact, the Dollar seems to have remained in favor, in the wake of ongoing fears toward the Greece financial condition. However, the markets did see a rather robust UK house price gain overnight, but that news might have been offset by surprising comments from Trichet, who suggested that the risk of a global depression was underestimated. However, economic sentiment might improve temporarily this morning in the wake of the US 4th quarter GDP reading. In fact, Obama early in the week hinted at an improvement in the US GDP report, but the trade already seems to have baked in a strong US GDP report for this morning.

GOLD MARKET FUNDAMENTALS: While the gold market seems to remain focused on demand prospects, the track of supply side news this week seems to have generally favored the bear camp. Fortunately for the bull camp news of a rise in Chinese gold production this week, was offset by news of a jump in Indian gold imports. However, the gold trade has to be concerned about residual strength in the US Dollar, as the Dollar managed yet another new high for the move early this morning and in the process the Greenback reached the highest level since September 1st. While the trade is generally anticipating a strong US GDP reading this morning, one would have to think that the market has already factored in a large portion of that type of result. The bear camp will point out that April gold remains below the 100 day moving average of $1,088.70 into the opening today, while the bull camp might try to play up the strong leap in UK house prices and a slightly positive early track in the US equity markets. For the gold market to benefit from higher equity prices today might require equities to maintain higher prices all the way into the close today, as rallies in stocks this week have been fleeting events.

SILVER MARKET FUNDAMENTALS: While May silver has managed to recover from the low forged yesterday, the bull camp would seem to have very few themes at its disposal. Clearly silver saw some pressure this week off a growing disappointment in the pace of the US economy, and those views also seem to have been enhanced by a very confusing political environment and by noted declines in US equity prices. Like gold, the silver market also seemed to be partially undermined by the resurgence of concerns toward the Greece situation. Furthermore, silver also seems to have be weighed down by noted weakness this week, in a host of physical commodity markets. In conclusion, the silver bulls appear to need something very positive from the US GDP report this morning, but the question is whether or not macro economic optimism will be sustained after the GDP reading is absorbed. It is also possible that a strong US GDP reading could lift the Dollar further this morning and that could serve to limit the benefit of economic optimism in most physical commodity markets.

PLATINUM: With a partially oversold technical condition and hopes of some positive news from the US economic report front, we have to give the initial edge to the bull camp. Therefore close-in support is seen at $1,500 today and we can’t rule out a rise back to $1,526. However, with a slack economic outlook still generally in place, traders should not shift back into a full bull mood.

Energy Market Commentary – 2010.01.29

by on January 29, 2010

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has at times attempted to edge a bit higher in the early overnight trade amid some optimism that today’s scheduled reports could help improve the demand outlook for oil. March crude oil has seen a nearly $12 price break from the January high on concerns the global economic recovery won’t be strong enough to revive oil demand this year, especially since China has started to tighten bank credit. Given the variety of negative factors, we do see the potential for March crude oil to eventually break below the December low. But it also looks as if the market may have become sufficiently oversold for March crude oil stage a recovery bounce if today’s reports on 4th quarter growth, Chicago PMI and consumer sentiment come in better than expected as that could give traders an end of the week and more importantly, and end of the month incentive to short cover. But while a rally back to the $75.00 to $75.40 price range in March crude oil may be possible, we have doubts that seeing a strong gain in the GDP data, expected to be up 4.6%, will be a major trend changer for oil. While today’s GDP reading may show the economy grew at the fastest pace in nearly four years in the 4th quarter, that growth clearly isn’t translating into higher fuel demand given that the unemployment rate remains near 10%. Most of the US economic reports have been disappointing this month and there are escalating fears that China will take more aggressive monetary tightening steps this year that could significantly dampen China’s demand for oil. This week’s inventory report clearly showed US oil demand remains ultra week, falling 2% over the last four weeks compared to year ago which was at the depth of the recession and financial crisis. There is also clear evidence that global oil demand remains weak since data from Japan, the world’s third largest oil consumer and 2nd largest oil importer, showed oil product sales fell nearly 7% last year with consumption falling to a 24 year low for the month in December with oil imports falling 2.6% last month. Escalating debt problems in Europe also threaten economic recovery prospects in both the Euro-zone and the UK as rating agencies continue to warn Greece, Spain, Portugal and even Britain of sovereign credit downgrades. Adding to the longer-term bearish view is an IEA prediction this week that oil demand in developed countries has likely peaked and isn’t likely to reach the high levels seen in 2006 and 2007. We also suspect the harsh political regulatory climate amid the push for position limits and restrictions on bank trading will continue to be an obstacle for the bull camp to fully overcome. But in the short run it won’t be surprising to see March crude oil stage a recovery bounce since technical indicators suggest a temporary low may have been set. March crude oil saw an inside day yesterday and it was impressive to see the market hold up in the face of another sell off in equities and the Dollar reaching a six month high. This price action hints that the liquidation seen recently in this market may have ebbed. Given the oil market’s oversold condition, it may not take too much in the way of good news today to inspire month end short covering to book profits. Therefore, short position holders may want to have some profit protection in place. However, if a technical rally is seen it should be considered a fresh opportunity to sell the market at a better level since we suspect the variety of bearish factors that have been weighing on oil, particularly weak US demand, will eventually pressure the market below the December low.

GASOLINE: The gasoline market has also at times attempted to edged higher in the early overnight trade and as is the case in crude oil, this market also seems to be oversold enough to stage a recovery bounce this session if today’s economic news can provide a short covering incentive. After breaking nearly 29 cents from the January high daily technical indicators for March gasoline have fallen to an oversold extreme and with this being the last trading day of the month, seeing a good GDP reading may be enough of an excuse for traders to book profits. March gasoline may be sufficiently oversold for a technical bounce back towards $1.9850 over the next couple of sessions. But since we still see the demand situation for gasoline remaining weak, we suspect a rally in gasoline will be short lived and give traders a fresh selling opportunity. Eventually, we see March gasoline retesting the December low. The trade action in gasoline could turn volatile today since the February product contracts expire.

HEATING OIL: March heating oil has seen a choppy sideways trade overnight, but like the rest of the complex, short-term technical signals hint that a short covering bounce is possible. While the trend is clearly down in heating oil with the market taking out the December low last week, daily indicators have fallen to an oversold extreme. March heating oil also looks to have found some tentative chart support near the $1.90 price level and if today’s economic news comes in on the strong side it’s likely to inspire some month end short covering. However, a rally in March heating oil is likely to end up being short lived since supplies are ample while industrial fuel demand remains ultra weak and the warm-up in the weather forecast over the next two weeks will also likely reduce winter heating use. A technical recovery bounce back to the $1.9650 to $1.9750 range may be possible in March heating oil. But we suspect a much stronger optimistic view for a recovery in fuel demand will need to take hold again in order to support a rally back above the $2.00 price level. A short covering bounce today will likely hinge on the economic news. But if bearish sentiment remains in place then $1.90 becomes the next target while an eventual break in March heating oil back to $1.8150 can’t be ruled out.

TODAY’S ENERGY MARKET GUIDANCE: After reaching a technically oversold extreme, there is the potential to see an end of the month short covering in oil markets today if the economic news and outside market influence can provide a buying incentive.

Corn Market Commentary – 2010.01.28

by on January 28, 2010

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NEAR-TERM MARKET FUNDAMENTALS: A modest bounce overnight in corn may have been tied to relief that the State of the Union address did not contain any further bad news for the markets. This should allow the corn market to concentrate on economic news, export sales and the pace of farmer selling. In recent days and weeks, the economic news has been on the negative side for the US in terms of the outlook for consumer demand. This has dovetailed with uncertainty over the effects of tightening measures currently underway in China. However, export
sales have been strong in corn, and farmer selling has been disciplined, which has kept basis levels mostly steady in recent days after the significant basis gains seen in key areas during the first 2-3 weeks of January. Traders are expecting another good export sales number this morning with estimates ranging up to just over 1 million tonnes. Last week’s total was in excess of 1.6 million tonnes. This compares to a weekly average of 753,400 tonnes needed to reach the current USDA export projection for the 2009/10 crop marketing year. Forecasters in Argentina are calling for scattered rain on Saturday and again to start next week. They expect cooler and wetter weather to start next week which would bring relief from the 100 degree temperatures that have been seen in recent days. Hot weather is expected to continue into the start of next week. The EPA continues to work toward finalizing its standards for the development of renewable fuels that have been mandated for the nation’s fuel supply. Sticking points have involved the impact that the production of various feed stocks for bio-fuels will have on the environment. In addition, progress has been slower than expected toward the profitable use of non-food cellulosic sources for ethanol production. No news on when the new EPA standards will be put in place. An Israeli firm has bought 27,000 tonnes of corn. The origin is thought to be Argentina. Taiwan bought 60,000 tonnes of South American corn yesterday.

TODAY’S GUIDANCE: Price erosion is likely to continue over the intermediate to longer term, but another round of increases in open interest in corn this week may be setting the stage for a modest bounce. However, fund selling remains an ongoing negative factor, and we would still not be tempted to pick a bottom. First support remains at 354 in the March contract. Resistance remains at 372 1/2.

Soybean Market Commentary – 2010.01.28

by on January 28, 2010

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NEAR-TERM MARKET FUNDAMENTALS: Trade reaction to the State of the Union address was somewhat positive for financial markets, and grain traders saw some relief from the bearish outside market forces overnight. However, there is still significant concern that the bank regulation reforms could in the long run spark increased volatility in the futures markets. Ideas that the market is in a short-term oversold condition and that reforms will not occur for months or longer have helped to provide some support. There are unverified rumors that China has switched two cargoes of US soybeans to South American origin and that there is one US cargo of soybeans under quarantine in China for quality concerns. On top of fears that bank trading restrictions could lead to futures volatility, China traders are concerned that the tightening credit situation there could lead to a near term slowdown in commodity demand and at least temporary pressure on many commodity markets. A strong US dollar, a weak Brazilian currency and talk of hedge funds shifting from a net long to a net short position in soybeans are factors which have helped to pressure the market. Argentina crushed 1.5 million tonnes of soybeans in December, compared with 2.26 million tonnes in November and 2.37 million in December 2008. March soybeans fell to their lowest level since October 8th yesterday with good volume noted. Growing conditions continue to be very favorable in Brazil with forecasts calling for an improvement over current hot and dry conditions in Argentina by the end of next week. Brazil is expecting scattered rains over the next several days, while Argentina may start getting scattered rains on Saturday and again to start next week. Indications of cooler and wetter weather in Argentina for later next week could ease stress concerns. The Census Bureau will issue its latest monthly crush data this morning. Traders are looking for the crush rate to be nearly 173 million bushels for December. Export sales will also be released this morning with expectations currently ranging up to 900,000 tonnes for soybeans, up to 300,000 tonnes for meal and 5,000 to 20,000 tonnes in soy oil. The outlook for surging soybean stocks for the coming year as record crops from the US, Brazil and Argentina move in to saturate demand has helped shift the psychology in the soybean complex.

TODAY’S GUIDANCE: Eventually, the market looks to end up with too much meal and a tightening supply of world vegetable oils. The market is in a short-term oversold condition, but rallies still look like selling opportunities. Selling resistance for May soybeans comes in at the 949 3/4 and 960 3/4 with 932 3/4 and 904 1/2 as next downside objectives. November soybean selling resistance is at 936 3/4 with 909 1/4 as next downside objective.

Wheat Market Commentary – 2010.01.28

by on January 28, 2010

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NEAR-TERM MARKET FUNDAMENTALS: Traders indicate that the wheat market keeps running out of fresh sellers after making new lows for the year. Funds have been leaning to the sell side in recent days, but quantities sold by them have not been large, and signs of increased export demand have tended to balance out the fund selling, according to one analyst. Egypt bought 180,000 tonnes of wheat yesterday, all of it from Russia. US wheat remains overpriced in that important region, especially in the eastern Mediterranean, so it was no surprise that the sale did not include wheat from the US. Japan bought 127,000 tonnes of wheat on its regularly scheduled weekly tender. Also, Tunisia bought 42,000 tonnes of soft wheat and 50,000 tonnes of durum according to traders. The USDA will issue its latest Export Sales report this morning. Traders are looking for a total of up to 650,000 tonnes in net new sales. The total will almost certainly be down from last week’s big sales total of over 825,000 tonnes, but it is expected to be well above the average of 273,400 tonnes in new sales needed each week to reach the USDA’s export projection for the marketing year. Traders indicate that weather in the US may be providing some minor support to the wheat market with much colder temperatures across a broad swath of both the hard and soft red winter wheat belts. This included some scattered areas of freezing rain, but most areas have adequate snow cover so damage should be minimal.

TODAY’S GUIDANCE: The push to a new 3 1/2 month lows in wheat yesterday suggests that the long term downtrend is still intact. However, increased open interest, including the continued buying interest by index funds seen on the last Commitments of Traders report suggests that investors may still have a long term appetite for commodities. This may mean erratic swings in the wheat market that include a series of new lows for the move followed by significant bounces. Next support in March wheat is near 470 to 475. Resistance starts as low as 502, then at 507 1/2 and 514 1/4.

Currency Market Commentary – 2010.01.27

by on January 27, 2010

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DOLLAR: The Dollar has shown definitively bullish and definitively bearish tilts this week. As in the world equity markets, the currency markets are facing a significant amount of uncertainty in the US, with respect to government policy, taxation, spending, clean air and perhaps several other issues that should be nowhere near the front burner. In the end, the pace of the US economy doesn’t seem to support a distinct flow of fresh capital toward the Dollar, but the lack of a definitive alternative has seemingly kept the Dollar well bid this week. In fact, the Dollar bulls seemed to buy into the idea that the US would actually live up to promises to limit spending. Like the US stock market, we have trouble being bullish toward the Dollar off the current track in the US economy. One would also think that seeing the US Federal Reserve remain on hold again today would be negative for the Greenback. Getting away from politics, Obama would seem to need to bring down the level of policy uncertainty for the US Dollar and for most US assets to be held in consistent favor. We get the sense that the Dollar is expensive above 79.00.

EURO: While the March Euro actually managed another new low for the move overnight, the currency did manage to reject that slide. However, the Euro remains just above the downside breakout point and while the German government gave some positive economic views overnight, the 2010 German GDP forecast for a gain of only 1.4% hardly looks to attract an aggressive influx of investment. The one thing the Euro does have going for it, is a lack of political wrangling and to a degree, that has probably served to limit the amount of selling pressure on the currency. We seriously doubt that the March Euro is going to avoid at least a temporary slide below the 1.40 level. The biggest hope of the Euro bulls, has to be that the US is poised to step on its own tail in the State of the Union address tonight.

YEN: As we predicted, the March yen managed a rise back above the 112.00 level and we would not think that the upside action has fully run its course yet. In fact, until one can get bullish toward the US equity market, we suspect that the bias in the Yen will remain up. If the Obama Administration lights more fires than it puts out in the speech tonight, that could see the Yen reach up to the 113.50 level before the end of the week. It is still too soon to add to long term Yen put plays.

SWISS: After a fresh new low for the move was rejected overnight, one might get a technical sense that the Swiss has bottomed. However, for the Swiss to bottom probably requires a distinct improvement in the global macro economic outlook and we are not sure if that is in the cards over the coming 36 hours. The March Swiss might need to fill a gap on the charts, with a temporary slide back down to 94.85.

POUND: A pattern of lower highs on the charts would seem to leave the bear camp with an edge today. So far, predictions calling for an annual rise in UK CPI figures had little impact on the Pound. It does seem as if the Pound was bid up off BOE dialogue, that suggested 4th quarter UK GDP figures might come in stronger than initial expectations. Like a number of other currencies, the Pound bulls would seem to need a turn up in global equities, just to throw off an entrenched downward bias.

CANADIAN DOLLAR: While the Canadian has managed to avoid a fresh new low for the move overnight and the BOC offered up some very valuable advice on Bank Reform overnight, the current market isn’t capable of fully checking the slide in the Canadian. Against a back drop of Chinese tightening fears, confusing US policies and a lack of distinctly upbeat economic readings, that would seem to leave the key Commodity currency, the Canadian out of favor. The best thing that can happen for the Canadian bulls, is to see a misguided ongoing washout in the March Canadian down to 93.00 and then one might be able to re-enter the long side of the equation.

TODAY’S MARKET IDEAS: Expect the Yen to remain well bid until the latest track of US policy initiatives is unleashed on the marketplace.

Bond Market Commentary – 2010.01.27

by on January 27, 2010

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After forging a distinct rally attempt and managing to reach the highest level since December 18th yesterday, Treasury prices fell back and March bonds ended up finishing near a collection of closes around the 118-06 level. It must have been an interesting Fed meeting kick off yesterday with Congress wrangling over the confirmation of the Fed Chairman. Supposedly Bernanke has the Senate votes to be confirmed, with that vote expected to come on Thursday. However, members of Congress have to make up for their lack of attention to the beginning of the sub-prime crisis, by making a public scene and blaming Fed leadership. Too bad the FOMC isn’t allowed to re-confirm members of Congress and in the process they could grill the legislators on their efforts to grow Ginnie and Freddie into reckless out of control lending machines. In the end, Bernanke seems to have the support of the White House and enough of the Senate to be confirmed. While the Treasury Bonds saw a rally of roughly 9 ticks, with Notes only gaining 5 ticks in the wake of the first leg of US Treasury auctions on Tuesday, the market will be presented with another $42 billion in 5 Year note supply today and that promises to lend some minimal support to Treasury prices around mid session. With the US State of the Union speech anxiously awaited tonight, the Treasury market might be locked into a tighter than normal trading range, as there are hopes that the US will reign in spending, but there would also seem to be the need to provide even more stimulus spending! Just as an addict promises to quit after the next fix, the US will probably look for another jobs program or for a slimmed down health care reform package, or for a clean air program and then it will clean up its spending act. In the mean time, overnight equity prices showed periodic weakness and that seemed to be providing a bit of a flight to quality bid to bonds and notes this morning. In addition to a new Home sales report, that is expected to show a minor gain, the Treasury trade will also be confronted with testimony from Treasury Secretary Geithner on the AIG payments. While the hearings might not go that well for Geithner, we doubt that the testimony will serve to derail US Treasuries. Once again Congress will try to nit pick Geithner in hindsight for moves that were made under extreme pressure but we doubt that anything will happen beyond the Treasury Secretary losing some favor within the Obama Administration. In short, after some minor weakness, in the face of the New Homes sales figures and the AIG testimony, we suspect that Treasury prices will attempt to climb into and through the mid day auction results and then catch a slight additional bid into the FOMC statement release window at 1:15 cst. We have to think that the Fed is going to remain totally on hold, with little if any change in the statement, as the recent numbers have softened and noted weakness in equities has probably served to dent consumer and investor sentiment. Therefore, we would expect a slightly positive late morning and afternoon bias, but we also suspect that Treasury prices will find it difficult to move outside of this week’s trading range, until the market learns what other major institutions might be turned upside down by the governments ongoing overhaul addiction.

Stock Market Commentary – 2010.01.27

by on January 27, 2010

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The stock market remains in a bad position, as the US has spent its way into a massive hole and it would seem like the US economy is in need of even more spending to nurture forward progress in the economy. Maybe Obama will say tonight that he is going to fully halt spending immediately after his term is over. While the market didn’t make too much out of the sharp decline in existing home sales earlier this week, weakness in housing figures has already fostered talk that the US housing market is still unable to carry its own water. Therefore, we suspect that the new home sales report this morning will be fairly critical and it is imperative for the bull camp that something positive is seen from the data, as the market remains vulnerable off a host of themes. In fact, with favorable US corporate earnings reports generally taking a back seat to macro economic and political concerns, the best outcome from the State of the Union address tonight, might be to see less initiatives pouring forth from Washington. Usually we would expect to see a stock market bounce in the wake of the FOMC statement early this afternoon and we would also expect to see a run up Thursday, when Bernanke is confirmed, but in the current condition, business leaders and investors just have too many uncertainties to be pulled back into the stock market in big numbers. Instead of predicting a rally, we think the market needs good numbers, a good auction and a favorable FOMC statement just to avoid more weakness.

S&P 500: It looked like the S&P might be able to forge a classical reversal signal on the charts yesterday but that hope was dashed with a late slump. Clearly the economy lacks momentum, political uncertainty is extremely high and the markets are also off balance because the Chinese are enforcing prior tightening intentions. As suggested in other sectors today, the bulls might catch a minimal lift off the scheduled data flow this morning and that upward tilt might be fanned by the US action and by the FOMC statement, but on any bounce today, we would think that those holding longs into the close, would be facing a significant risk into the next round of Obama initiatives. Critical support is seen down at 1081, with even lower support seen down at 1073.

DOW: With the markets failing to post a key reversal after another new low move yesterday, the technical bias remains with the bear camp. In looking at the totality of the fundamental case, the bear camp would also seem to have the edge. As suggested in the introduction today, the Mini Dow probably needs a series of favorable developments just to keep the selling pressure to a minimum. After the biggest stimulus program in the history of the US seen last year, it would seem like Obama is poised to push child care credits and a further pounding of Wall Street, as the solution to further slowing. All things considered, Obama has painted himself into a corner by offering up the promise of a spending cap, when it is possible that more stimulus efforts will be needed. While the market might forge a weak rally off housing news, the auction and the FOMC statement, we doubt that the trend is going to be pointing up into the close today.

NASDAQ: While the bull camp might want to point to a collection of closes around the 1797.70 level, as some sign of consolidation support, the big picture look on the economy is suspect and overall uncertainty abounds. In addition to a Congressional grilling of Geithner today, the market is also seeing the end of the grilling of Bernanke and it is also likely that some portions of the press will be poised to grill the President after his speech tonight. In short, strong tech sector earnings did nothing for the market and we suspect that nothing will support stock prices, until they get cheap enough to equate to the lack of direction in the economy. Initial support is seen at 1785 and then again down at 1774 and therefore we have to leave the edge with the bear camp.

TODAY’S MARKET IDEAS: Too much uncertainty and little if any interest in favorable earnings news suggests that the bear camp retains control over prices. It might pay to buy a near to expiration option strangle.

Hog Market Commentary – 2010.01.26

by on January 26, 2010

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The market looks vulnerable to a continued slide over the short-term. The cold storage report on Friday indicated a strong pork export market in December but that was before the slowdown in US poultry exports and until the Russian poultry situation is resolved, the market looks vulnerable to at least some speculative long liquidation selling. The hog market pushed sharply lower on the session yesterday as a weak tone to pork values and steady/lower cash markets helped to pressure. A record net long position from speculators combined with news of a lack of progress in talks to end the poultry trade dispute with Russia helped spark the selling yesterday and the move under last week’s lows added to the selling pressures. The cold storage news for pork was bullish but the news was bearish for pork bellies and the sharp drop in bellies helped pressure futures. Fears that the pork market has reached a level which would price-out demand has also helped to spark long liquidation selling. The CME Lean Hog Index as of January 21st came in at 70.14, up 62 cents from the previous session and up from 67.80 the week before. The estimated hog slaughter came in at 425,000 head yesterday which was higher than expected and a positive sign for packer demand. This is up from 377,000 last week and up from 422,000 a year ago as this time. Pork cut out values, released after the close yesterday, came in at $75.18, down $2.00 from Friday and down from $75.71 the previous week. This is the lowest since January 14th and the weakness could leave traders concerned that packer margins and cash hog prices could ease in the next few weeks. Keep in mind; pork prices are still higher than at any point in 2009. Traders also see the possibility that “extra” poultry which is not being exported to Russia will show up in the domestic retail pipeline and compete with pork and beef at the retail level. Moving “extra” meat on the market usually means discounting and this could drag meat prices down, at least temporarily. The overbought condition of the market is also a significant concern as the COT reports on Friday showed a strong buying trend from fund traders but both the non-commercial net long and the combined spec net long positions are at a record high.

TODAY’S GUIDANCE: Look for choppy to lower trade until there is a better signal for improved poultry trade with Russia. Support for February hogs comes in at 67.45 and 66.22 with 69.07 as resistance. April hog resistance is at 70.95 and 71.27 with 68.85 and 67.15 as support.

TODAY’S MARKET IDEAS: Consider strategies which will benefit from a short-term correction and a continuation of the bull trend ahead.

Cattle Market Commentary – 2010.01.26

by on January 26, 2010

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The market is overbought and has absorbed significant new buying from funds and speculators recently but increased fears of a build-up in meat supply if exports slow has helped spark the long liquidation trend of the past few sessions. The cattle market pushed lower yesterday after choppy trade early in the session as the news of a tightening supply from the supportive USDA cattle-on-Feed report from Friday failed to provide for much support. Buyers are on the sidelines as traders remain concerned that domestic poultry supply will gradually swell due to the loss of exports to Russia and that the increased domestic supply will cause beef and pork values to slip. The estimated cattle slaughter came in at 124,000 head yesterday. This was down from 129,000 last week and down from 126,000 a year ago as this time. Boxed beef cutout values were up 23 cents at mid-session yesterday and closed 19 cents higher at $143.40. This was down from $145.71 a week ago. Cash cattle in Texas traded $.50-$1.00 higher on the week Friday at $86.00 and with feedlot supply at a seven year low; the short-term supply outlook is somewhat supportive. Placements of cattle onto feedlots in December were the lowest for the month since 1998. In addition, feedlots moved more cattle off of feedlots in December than expected at 103.5% of last year which means there were less cattle on feedlots to start the year and this was supportive to the February contract. Traders have assumed that the poultry trade with Russia would be resolved quickly but when talks broke down on Thursday with no progress, the market saw reason to sell. Ideas that the market is overbought and talk that the bullish USDA report was already priced helped pressure. The COT reports for the week ending January 19th showed an aggressive buying trend from fund traders. Trend-following funds (hedge funds) bought 17,181 contracts to increase their net long position to 56,558 contracts, a new record high for the data which has been released since January of 2006.

TODAY’S GUIDANCE: Once there is a stronger feeling that Russia will resume poultry imports from the US, the market will be in a position to move higher. However, futures remain vulnerable to a short-term sell-off. Given the overbought condition, new buyers might wait for a significant technical correction before entry. April cattle resistance comes in at 90.42 with 88.92 and 88.20 as next key support levels. Look for more weakness ahead.

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