The buying reportedly sponsored by a larger professional trader spilled over to the April contract, which closed strong enough to jeopardize the resistance at the neckline of the head-and-shoulder top formation on the hourly chart. Fundamentally, beef prices are strong but movement is disappointing. Chicken prices are higher, which may reflect more interest in featuring chicken right now. Slaughter so far this week is below the year-ago pace, which is a bad sign amid larger on feed numbers. Last week's weights were estimate at 790 pounds versus 788 the previous week and 777 last year. The heavier weights seem to mesh with the concern of backlogged cattle, and oppose the idea that higher corn prices and wintry weather have hurt weights. The last time we saw a significant marketing backlog was in 2002. The year-to-year percent decline in prices for 2002 suggests that prices in early 2007 should be in the lower $80s rather than the upper $80s. The last time the cattle market saw storms this bad was in 1997 and weights dropped off sharply. The year-to-year percent increase in prices for 1997 suggests that prices in early 2007 should be in the upper $90s rather than the upper $80s. That sets your extremes and what the bears and the bulls are envisioning.

Feeder cattle futures were lower, but finished 200+ points higher off the lows for the nearby contracts. Feeders rallied as live cattle futures rallied and corn fell from its highs. The session lows were new contract lows for January and March. This attracted short covering and bottom-picking buying. Feeder demand was obviously soft as seen by the lower cash feeder reports. Prices this low may be able to pencil based on live cattle futures, if they're not stressed in sloppy feedlots. This may keep feeder demand soft for much of the winter. 

Milk futures were lower. Early action was higher, with the lower closes putting reversal tops on the charts. Steady/lower cheese prices also attracted some selling. The recent gains seemed to be prompted by the idea that higher corn prices would decrease production. My bias is that the higher futures will encourage producers to keep their dairy cows. Some of the bearishness may be attributed to the USDA proposing to lift the ban on importing breeding cattle.

Source: Inside Futures