— The livestock markets continue to flounder as we end September. The outlook for October does not seem to hold any major changes in either the cattle or hog markets.
The cattle market, which many had expected to be in the midst of a rally at this time, has done nothing more than stay range-bound as it has all year long.
Cattle numbers were expected to be lower at this time, which they are, but it turns out to be not the supply of cattle but the demand for beef. Another hindrance to squelch any rallies has been the excessive weight on finished cattle, which has kept the tonnage of beef greater with fewer animals.
Beef cutouts have continued to be range-bound and are now near the lows of the trading range $140 per hundredweight basis choice. The hide and offal value has dropped dramatically recently and this coupled with the cutout value is beginning to squeeze the packer margins.
Unless these two indexes turn around, the packer is not likely to be too aggressive in acquiring inventory in the weeks ahead regardless of numbers. Speculators have dominated the futures market lately and have run some futures contracts to excessive premiums. This should allow producers to lock-in some inventory to take advantage of the basis.
The key to the price direction of the cattle market lies in the demand for beef, not in the number of cattle ready for market.
The hog market has been somewhat of a yo-yo lately as prices have rallied only to slip back down once again as availability of hogs has outdistanced the demand for pork. The concentration of numbers in this timeframe was certainly unexpected by most analysts and prices have suffered as a result.
One Sept. 25, the U.S. Department of Agriculture released a Quarterly Hogs and Pigs Report. The results are as follows: all hogs and pigs as of Sept. 1, 98 percent; kept for breeding, 97 percent; kept for marketing, 98 percent; June-August pig crop, 98 percent.
The report is seen as neutral since the numbers fell in line with pre-report estimates and should have little overall impact on the market in the short term.
One concern regarding the psychological aspect of the market is the re-occurrence of the H1N1 virus this fall. If a major outbreak occurs will it affect the hog market as it did last year? As with the cattle, demand is key for the direction of pork prices.
Pork cutouts have also been trapped in a range for some time and are now approaching the lower end of that range. For the hog market to sustain any rally, demand will have to be the catalyst to move the market higher. Producers should take advantage of the large premiums offered by deferred contract months and lock-in some inventory.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
