by Dennis Smith
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Cash was mostly .50 higher yesterday with no real outlook regarding today’s cash tone. It’s easy to argue for soft/lower cash in my opinion. It appears that any push in the kill will drive the product lower to sharply lower. Hams are weak and butts are expected to see recent torrid export demand peak. Bellies remain stellar with loins in good shape mostly because of low prices. April hogs posted an inside day on Monday but the contract looks poised to test support levels, in my opinion. Consider support just underneath the market at 7300 and again at 7200. Major support is represented by 7100. On a short term break we hope to purchase calls. Our outlook is for improving spring time demand for U.S. pork in tandem with lower butcher hog supplies on a seasonal basis.
While yesterday’s action in LC felt disappointing to many the fact that Feb gapped higher and did not fill the gap and the fact that the bull spreads are strong is bullish. The show list is slightly larger this week. Export business is booming with boxes lined up for export last week soaring to about 20% of production. The declining nature of the U.S. dollar will continue to drive beef exports. Beef packers reached for cattle on Friday and the general expectation is that the cash steer rally is not compete. The beef was strong yesterday and this information should set the tone in today’s early futures trade. Look for upside follow through led by the front two contracts. Volume in futures was moderate yesterday at 58,200 with open interest up just slightly. Our “sell zone” to reestablish hedges in the summer cattle is from 118-120. We covered nearly all of our hedges in the 11400-11450 range, taking profits. Finally, the Mar FC displayed an inability to close over 14800 yesterday which is the resistance to watch closely. Eventually, on a break into mid-February, we’re going to look at buying March and/or April FC calls.
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