From a seasonal standpoint, it would appear that the livestock markets are in the process of establishing their highs for the summer.
The cattle market after a fairly decent rally in the beginning of May is now starting to see a weakness develop as we approach the first of June. Beef cutouts appear to have topped and cash prices have recently begun to tumble, reflecting a change in the market’s overall attitude from friendly to more defensive.
As beef cutouts reached well above the $160 per hundredweight level basis choice in the early part of May, volume in the boxed beef slowed as it has done several times in the past when these particular levels were attained. This reflected the retailer’s hesitation to pay more for beef when supplies of competitive meats were in ample supply. Thus the packers were forced to protect their margins and soften their bids for live inventory.
With the barbecue season now well under way and retailers fairly well stocked with inventory, look for further deterioration in the beef cutouts as more inventories become available in the coming weeks. If the U.S. Department of Agriculture projections are accurate, more cattle should be available for market during the next 30 to 45 days. This will solidify a seasonal top in the market and keep pressure on prices during that time frame.
On a short-term basis the market may be a little oversold and subject to a short-term rally. Producers should use these rallies to protect summer inventories.
The hog market has experienced a similar pattern as the cattle in the first part of May, while lately prices have drifted lower. After pork cutouts reached the upper $70s/cwt., volume in the pork product slowed and packers became more cautious and subsequently backed the bids down for live inventory. Retailers should have built up their inventory of pork for the barbecue season and with the natural increase in hog numbers coming, this bodes well to indicate that a seasonal top is forming in the hog market as well.
Demand has been excellent for pork, especially export business, but the competitive meat situation is likely to keep prices in check and even drift lower into the summer months. Considering the premiums offered by the futures market, producers should be looking at hedging opportunities on any rallies to lock-in summer and early fall inventories.
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Livestock Angles: Cattle market beginning to weaken
<i>Originally published in the June 1, 2007, print edition.</i>
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