The beginning of June has not been a bright spot for livestock prices so far. Both cattle and hog prices have been under pressure at a time when seasonal influences usually bring higher prices.
Cattle prices have slipped back to the lower $80s per hundredweight basis the Midwest and instanced below the $80/cwt. level as packers became more defensive in their bidding for live inventory. The main reason for the defensive posture was the continued deterioration of the beef cutout values as they plunged back under the $140/cwt. level basis choice for the first time since mid-April.
Demand for beef had fallen off as beef cutouts rose in the latter part of April and have fallen off since their peak in the last few days of that month. Some of the weakness could be associated with the H1N1 virus, but the economy would be most likely the No. 1 reason for the slowing in demand for beef.
With the cheaper competitive meats available, beef has suffered probably more than any other meat. Also the strong dollar has hampered the export demand for beef as well as other meat products, keeping pressure on the beef cutouts.
As we move into the summer months, cattle inventories should be on the decrease as past cattle-on-feed reports would indicate. The question will become will the fewer numbers of cattle on feed offset the weakened demand and help prices recover over the next several weeks and months. Because of these uncertainties, producers should be cautious in their marketing approach and protect inventories when presented profitable situations.
The hog market has been on a roller coaster ride all spring. The market has seen prices fall dramatically followed by quick sharp recoveries, only to fall once again.
Some of the sharp moves could be pointed to the H1N1 virus and the ill effects it had on the pork market, while the economy and the dollar also contributed to the weakness.
Pork cutouts have followed the same basic pattern as the live price paid for hogs giving rise as to why the packer bids were so erratic as they tried to protect their profit margins. With the H1N1 virus pretty much a dead issue now and pork cutouts back in the mid $50s/cwt., the probability of pork prices finding a low are increasing.
The fact that on a protein value basis, pork has real value at these levels in comparison to other sources, and should find more acceptable buyers of pork product in the weeks ahead. This should help stabilize the market and as numbers begin to fall off could even see some price improvement.
The futures market has already anticipated this type of activity as represented in the large premiums in the deferred contracts. This could provide some opportunities to producers to lock-in some later year inventories.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
