A mid-January storm showed up in the forecast today to prompt some further buying, but the storm was weakened in the mid-day forecast to prompt some late selling. There still was no cash cattle trade as of the futures close, which also worried some longs. Cattle owners are seeing negative margins, even larger with the recent storms, so they are negotiating for higher prices. Packers margins are improved with the higher beef prices, but if they pay more, then they will need to see even higher beef prices. The packer is also looking at the relatively large near-term supplies, which suggests that there are ample cattle supplies and that they shouldn't have to bid up prices. Again, the general numbers don't look so bad with the on feed at 102%, placements at 95%, and marketing's at 96% (due to one less slaughter day). Placements could be smaller give the wintry weather seen at the end of the month to give a more bullish mentality for the deferred contracts. Still the on feed number would be the largest for December in the reporting history (since 1996). The number that jumped up and grabbed me and started dragging me down was the number of cattle on feed more than 120 days. That number is 135% of last year. Even if the wintry weather ends up killing 3 times as many cattle as the 30,000 being reported for the loss in the 1997 severe weather, the near-term on feed supplies are still up over 30% from last year. The futures premium shown by the April contract will work to spread those large numbers beyond the current time frame, but all those extra cattle would seem likely to keep stiff resistance above current futures prices.

Feeder cattle futures posted rather large losses on Friday, which was enough to close lower for the week. This came after a surge higher on Wednesday. Feeder futures did show early gains, but found a surge of selling as corn futures turned from lower to higher. Once again, the session lows for the March contract found support as it approached the host of moving averages, first on the list was the 20-day at 97.44. My bias is that the negative feedlot margins and the relatively high corn prices will continue, if not worsen, to dictate lower feeder cattle prices.

Source: Inside Futures