The drift higher was attributed to ideas that recent losses were overdone. There was little new to excite futures traders. Beef prices continued to trend lower, and cash cattle trade was not established to help determine a direction. There were some reports of light dressed trade at $138 ($87 live), supposedly $2 lower than a week ago. The higher futures reportedly prompted some cattle owners to raise asking prices, while the lower beef prices likely convinced packers to hold the line on bids, keeping cash trade to a minimum. Some are expecting that cash trade may not develop until after Friday's Cattle on Feed report. That report is due out after Friday's close, so Friday's trading action is likely to be two-sided perhaps in a narrow range. Pre-release estimates show expectations of 100.6% on feed, 88.8% placed, and 95.6% marketed.

Feeder cattle futures were higher. Not much new here either. Corn futures saw both sides of unchanged, but the bulk of the trading which occurred on the close was higher, which helped pull feeder futures off their highs. Higher live cattle futures and some reports of higher cash feeder prices may have been what was behind today's buying. The gains still were not able to push through resistance areas of recent highs, which are just below the big gaps left in mid January. From my perspective, higher cash and futures prices look difficult to achieve with what looks to be a growing supply of feeders (a result of the reduced placements) and sluggish demand for feeders (a result of profitability concerns with high corn prices and negative feeding margins).

Milk futures were sharply higher. The gains seemed to get stronger through the day, finishing about up 50 cents for the spring and summer contracts. The current supply picture suggests to me that futures prices were too high yesterday, so they definitely look too high today. Most of the supply fundamentals that I look at are not supportive of the higher prices (i.e. milk cow numbers higher, cheese and butter stocks higher, seasonally larger milk production in the spring time frame), but it is happening nonetheless. It feels a lot like 2004 when prices rallied up over $20.00/cwt. In that year, there was a shortage of Monsanto's Posilac product that is used to enhance milk production. Right now there seems to be somewhat of a push by some retailers to want milk from cows not using that product. This is prompting some producers to stop using Posilac, which is evidently prompting ideas of reduced milk production and therefore justifying higher prices, at least for futures traders. The other factor is the high feed costs that may increase cow culling, which is prompting some optimism of reduced production. So far the high feed costs have not been a deterrent as cow numbers have been increasing, perhaps because milk prices are much higher than in 2003 when they were below $10 at times.

Source: Inside Futures