Cattle futures posted a surprisingly weak reaction to news that the cash markets had posted a 3-cent surge this week. We suspect market-ready feedlot supplies are surprisingly liquid at this point, thereby undercutting producer leverage when bargaining with beef packers. Moreover, persistent demand weakness, as signaled by slumping cutout values, is pressuring the packing industry. An old trader axiom holds that a market that cannot rally on good news often proves vulnerable to larger losses, so we are wary of the short-term cattle outlook despite fundamental and seasonal factors suggesting prices will surge to record highs by early spring. February cattle edged one tick lower to 127.60 cents/pound early Friday morning, while April slipped 0.05 cents to 132.75.
Direct hog markets rose substantially Thursday, thereby encouraging CME swine traders previously confounded by their inability to sustain advances through much of late January. Bulls may also have been reacting to talk of belated ham strength, since the leg muscle market traditionally rallies during the run-up to Easter. Bears can reasonably point to concurrent beef weakness as potentially capping hog and pork gains, but having the February close strongly suggests bullish momentum is building. That fact that it pushed above a short-term downtrend line also seemed significant. The loss posted by pork cutout values Thursday afternoon probably limited the follow-through gains posted overnight. February futures rose 0.10 cent to 87.70 cents/pound in early-morning action, while June slipped 0.02 cents to 98.07.
The Thursday morning Export Sales report seemed rather bearish for ICE cotton futures, since the latest sales total, at 131,300 bales, fell 39% and 44% below comparable week-ago and four-week average totals, respectively. However, after reacting badly soon thereafter, cotton traders apparently proved quite amenable to more optimistic arguments. The fact that buying from countries other than China remained robust seemed particularly compelling. The subsequent rebound greatly limited the daily decline, which in turn made bearish efforts to force prices lower rather difficult again Thursday night. Industry insiders suggest short-sellers remain over-committed to the market and seem likely to be forced to exit those positions at higher prices over the short run. As long as Chinese officials stick with their program of building domestic stockpiles to stunning sizes, the cotton outlook seems rather promising. March cotton slipped 0.06 cents to 82.89 cents/pound Thursday night, while December fell 0.59 cents to 80.56.