After avoiding a substantial decline in the wake of last Friday’s disappointing USDA Cattle on Feed report on Christmas Eve, live cattle futures moved modestly higher Wednesday morning. Bulls are almost surely relying upon the prospect of persistently tight fed cattle supplies and robust demand from domestic and export sources for underlying strength. Having winter storms hammer the Central and Southern Plains over the past week may also favor bulls, since wintry weather is hard on feedlot cattle. Having choice cutout values post a major midday advance also seemed to provide considerable support for cattle futures. The February live cattle contract rose 0.55 cents to 133.77 cents/pound today, while April added 0.47 cents to 137.25 cents/pound.
The cotton market seemed to suffer from a dearth of fresh news over the Christmas holiday, although some might reasonably argue that the storm that marched out of the Southern Plains favored early-2013 bean plantings over cotton (due to somewhat diminished concerns about another drought next summer, which would favor bean plantings). Still, the lack of fresh information seemingly caused New York traders to focus upon technical aspects of the current situation. For example, the nearby March future pushed to three-month highs Monday and again today. That strength has been quite impressive, especially when viewed within the context of concurrent grain, soybean and equity index losses, along with the U.S. dollar advance. Its associated momentum indicators suggest the white fiber market is nearing overbought territory, but we don’t regard the latest readings as being particularly high. March cotton surged 0.66 cents to 77.06 cents/pound, while December gained just 0.23 to 79.01 cents/pound.
Cotton once again seemed to be competing with soybeans for acreage across the Southern U.S. Friday, as exemplified by the fact that is surged to its highest close since mid-September as bean futures rebounded strongly from losses posted earlier in the week. Vigorous export business has played a major role in the cotton market lately, but we suspect technicians are also climbing aboard the bullish bandwagon, because the ongoing advance has been very well behaved. That is, the March future has not fallen significantly below its 10-day moving average since mid-November. We tend to expect more of the same over the short term, especially if the other crop markets sustain rebounds from recent losses. March cotton ended the week by rising 0.35 cents to 76.18, while December advanced 0.29 to 78.52 cents/pound.