"[Wednesday] night may have been the latest bidding I have ever seen," said John Josserand, president of AzTx Cattle in Hereford, Texas, which operates facilities that can feed 250,000 cattle at a time. By Thursday, the frenzy spread to the Chicago Mercantile Exchange, where live cattle trading volume broke records and futures prices jumped to $1 a pound, the highest level in 22 months.

The tumultuous trading came after rallies in markets for other agricultural commodities have raised fears about global food price inflation. Wheat prices have soared as a drought in Russia destroys grain crops. CME pork bellies, used for bacon, have hit all-time highs this month.
"There is growing concern that food prices are going to head north," said Bob Goldin of Technomic, a Chicago food industry consultant. US cattle supplies have declined as ranchers culled herds to offset losses during the recession and calves emerged from the hard winter with less meat on their bones than usual.

Eoin Treacy's view 2008's high grain prices put pressure on cattle and pig farmers and the subsequent credit crisis heaped more financial hardship on farmers with low margins. As a result herd sizes were trimmed, creating a situation where supply is relatively curtailed as demand recovers. (Also see Comment of the Day on April 30th).

Feeder Cattle surged to test the upper side of the 6-year range by April before consolidating the advance. It has since unwound most of the overbought condition relative to the 200-day MA and has rallied back to retest the highs just below $120. A sustained move below $110 would be required to question potential for a successful upward break.

Live Cattle has a more volatile chart pattern but is also rallying towards the 2008 peak and has sustained a broad progression of higher reaction lows since early 2009. A downward dynamic sustained for more than a day or two would be required to question upside potential

Lean Hogs rallied impressively from the August 2009 lows to break upwards to at least new 10-year highs. It has since unwound the overbought condition relative to the 200-day MA and a sustained move below $73 would be required to question potential for further upside.

The Pork Bellies market is not currently functioning as an efficient pricing mechanism because near term supply has collapsed. Inventories are simply not available and open interest has shrunk to a total of 16 contracts. Compare this to the open interest of Lean Hogs at 216892 contracts and one gets an idea of how little supply is available. Prices were limit up every day for 2 weeks and fell back to just above $100 when the contract rolled. This is still a comparatively high price historically and a sustained move below $90 would be required to question current scope for continued tight pricing in the near term.