Sort & Cull

I know it's a fool's errand. But if the dunce cap fits, you might as well wear it.

I'm talking about making sense of the futures market on a daily basis, fully explaining each floor trading settlement as a logical consequence of basic fundamentals (or at least loosely rational implications of outside markets and/or world events).

Some days I can weave a plausible narrative. Some days it's like writing a novel entitled "Zombies in Space."

Starting the last trading week in March, today's action landed somewhere in the middle.

On one hand, live cattle contracts closed the session moderately higher, a technically insignificant shift that nonetheless made sense given the large premium status of recent feedlot sales and the exaggerated selling suffered by last week's board.

Some might argue that such firmness was painfully irrational in the face of Friday's "bearish" on-feed report that confirmed a much larger placement total than generally expected. Yet today's rally didn't strike me as a disconnect in that regard. After all, summer live contracts were already trading $14-$18 below spot cash before the monthly inventory hit the street.

Similarly, the mixed settlement of the lean hog pit was not difficult to explain. With the uncertainty surrounding the March 1 H&P report quickly rising on the horizon (i.e., to be released this Friday at 2 p.m. CDT), long liquidation and the unwinding of bull spreads seemed as predictable as thoughtful and prudent profit taking.

So far, so good.

Unfortunately, triple-digit gains in feeder cattle futures (oblivious to sharply higher corn prices, no less) kept me from running the reality-based table.

Now I'm sure some determined feeder bulls will take objection to my puzzlement before today's surging tide, pointing both to the impressive strength of the cash index and the price positive implications of February's sizable placement (i.e., reducing tight feeder supplies outside of feedlots even more).

While I partially see the drift of their bias, something just didn't seem right in the way today's feeder board staged its aggressive rebound. Part of my bewilderment may be tied to replacement valuations that somehow assume that fed prices in the second and third quarters will be as record breaking as they've been through the quarter soon to close.

Yet my more fundamental problem stems from reports that some much of the nation's pasture is seriously dry and in desperate need of bountiful plus spring rains. This seems especially true throughout the Southern Plains.

If crucial precipitation in ranch country over the next several months proves to be unacceptably stingy, short-term arguments for tight feedlot replacement could evaporate as quickly as a mirage in Death Valley.

Given the way feeder futures ignored such a possibility today, I guess either all CME rain gauges are either hidden from the view of traders or otherwise broken.

For more of John's comments, visit http://feelofthemarket.com/…

(AG)