More stimulus, inflationary tilt have fund traders active in cattle market
More stimulus plus inflationary tilt has fund traders active.
The driving force of the strength in the cattle market is seen from fund traders, whose aggressive buying is evidenced by the surge in open interest since Christmas.
With the inflationary tilt, ideas that there will be additional Covid aid packages from Congress, traders see a surge in demand in the months just ahead. Global demand is stronger as well. This clashes with the short-term reality of slow demand due to the virus and an ample near-term supply. While the long-term demand setup may be a positive, January beef demand looks sluggish and beef prices are under pressure.
The USDA boxed beef cutout was down $3.84 at mid-session yesterday and closed $3.97 lower at $205.90. This was down from $207.82 the previous week and was the lowest the cutout had been since October 28.
No trades were reported in cash live cattle, as of Tuesday afternoon. Last week, the weighted average steer price across all regions was $111.51, up from $109.19 the previous week. Cattle managed to take out Monday's low, yesterday, before a rally all the way up above Monday's high and to the highest level since December 29. The market recaptured all of Monday's losses.
Almost all commodity markets found support from the sharp break in the U.S. dollar to a new low and a very strong up day for energy prices. The USDA estimated cattle slaughter came in at 118,000 head, yesterday. This brings the total for the week, so far, to 230,000 head, down from 235,000 last week and down from 244,000 a year ago.
Resistance for February cattle futures is at the $115.97-$116.62 zone. Support is back at $112.20. A resumption of the uptrend would leave $121.57, as next upside target for April cattle. Support is at $117.20.
Limited upside for Feb hogs but funds active buyers April, June.
Open interest is up significantly after putting in a bottom in mid-December, and this has helped support the uptrend. It may be a difficult task for the nearby futures to hold their than 10¢-plus premium to the cash market, and this could limit the advance in the next few weeks. However, fund traders are likely to be active buyers of April and June hogs. February hogs opened steady on the session yesterday and then fell far enough to fill the gap from the previous day before closing slightly lower. Almost all other commodity markets were trading higher on the session, as outside market forces were very bullish for commodities.
The CME Lean Hog Index as of December 31 was 60.62, up from 60.07 the previous session but down from 61.62 the previous week. The USDA pork cutout, released after the close yesterday, came in at $76.02, down 11 cents from Monday but up from $70.17 the previous week. The USDA estimated hog slaughter came in at 489,000 head yesterday. This brings the total for the week so far to 979,000 head, up from 941,000 last week but down from 994,000 a year ago.
The huge premium of February to the cash market has helped spark some selling. If the market can hold the strong gains in the pork market of the past week, buyers should remain active on minor setbacks. February hog resistance is at $71.40, with support back at $69.62 and $68.90. April hog support is at $72.50, with $74.75 and $75.30 as resistance. The upside break-out for June hogs leaves $86.40 as longer-term target.
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