Live cattle futures were sharply higher on Thursday. Triple digit gains were the norm for most of the day. April futures held its 300 point limit up much of the day. Optimism came from the get go, gapping higher on the open due to the sharply higher cash cattle prices. With cattle owners getting what they wanted the last two weeks and having raised their prices to $100+, April futures could easily justify a couple of dollars premium as the market expects cattle numbers to tighten and demand to seasonally improve. Due to that scenario, some are thinking that futures will test the all time high of 103.60. Others are calling for the top, citing blow off conditions of the sharply higher action to contract highs amid very heavy volume. The gap higher action today looks like exhaustion gaps, with the trade above the upper Bollinger Band and directionals showing overbought conditions and divergence to attract sellers. Packers will have to continue raising wholesale beef prices to justify what they paid for the cattle. Beef prices this morning were higher but still only suggest a packer breakeven pay price of about $96. Packers haven't backed off on slaughter suggesting that they are seeing beef move well enough to remain encouraged.

Feeder cattle futures were sharply higher. Triple digit gains were the norm here to. The improved fed cattle market is prompting expectations for strong feeder demand, which means higher cash feeder prices. Cash reports have been higher, but are still at a discount to the feeder index. The feeder index could climb pretty fast though if optimism continues and corn continues to trade sideways. Fed cattle prices have increased sharply in the past two weeks to give rise to profitable feedlot margins. This was not expected and seems to give a more bullish scenario than was believed possible from a demand side. If corn prices can't move higher, that would also suggest a more bullish scenario. The supply side looks like it could present a more bullish scenario in that there are reports of death losses from the wintry weather being more significant than expected. Having said that, it still would seem that futures have already adequately accounted for that more bullish situation.

Source: Inside Futures