June has not been kind to livestock prices so far, but there may be a change in the upcoming months to reverse this trend. At least the short term may hold a more-positive outlook.
The cattle market has continued to slump since the first part of June with cash prices dipping under $80 per hundredweight basis the Midwest. Beef cutout values have also been lackluster and have remained in a narrow trading range on either side of $140/cwt. basis choice since the start of June.
These two observations draw concern as show lists have been relatively small lately which gives the impression that demand is lagging. The grilling season is now in full swing and if demand is not on the rise at this time, a greater concern will be for the rest of the year.
Packer margins have not been sufficient enough for price discovery to be aggressive and therefore the soft tone to the live market. On June 19, the U.S. Department of Agriculture released the Monthly Cattle on Feed Report which indicated the following: On feed as of June 1, 96 percent as compared to the previous year; placed on feed during May, 86 percent; and marketed during May, 91 percent.
This report was interpreted as friendly by the trade placements and on-feed numbers were a little less than anticipated. Looking ahead, numbers are on the decline so supply will not be burdensome to the cattle market through the fall months.
The real problem for the cattle market at this juncture is demand. As demand has fallen off in recent months so has the price paid for live inventories. If this does not change in the months ahead the rallies, which will be anticipated by the industry, will fall short of expectations. With the economic situation worldwide not changing dramatically, the demand for beef is likely to continue to be sub par. Therefore, producers should be wary of supply led rallies and use these as opportunities to protect inventories.
The hog market has been struggling all year and so far June has been no exception.
Hog prices seem as if they have been under pressure forever as all the year the direct price for hogs has been in the $12/cwt. range between $63/cwt. lean and $51/cwt. lean basis the Midwest. Supplies have been fairly constant while the real culprit has been the demand for pork.
Demand has slipped both domestically and in the export arena over the past several months. Some of the export demand loss has come from a strengthening U.S. dollar and from the H1N1 virus outbreak. The association of the H1N1 virus to hogs is unfortunate but nevertheless it still effected demand for pork.
With the hog-corn ratio still at unpleasant levels, expansion in the hog industry is unlikely. Supply will not be the problem for the pork industry in the months ahead. It will be demand for pork.
As mentioned above, the world economic situation is a great concern for the expansion of demand for pork. Producers should be wary of any long-term upturns in the price of hogs, but use the upcoming strength as the market recovers from the recent sell-off to protect inventories.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
