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Livestock Angles: Markets disappointing for producers
Originally published in the October 16, 2009, print edition.
— As we moved into October, the livestock markets have experienced a good deal of disappointment for the producers. Prices have been down now for an extended time for both cattle and hogs, but can there be a change in this environment in the upcoming days?
The cattle market has drifted lower mainly due to the excessive weights of finished cattle which has put more than adequate beef available in the retail market. Demand has been slowed by the suffering economy and the results have been a lower market for several weeks.
Beef cutout levels are approaching yearly lows as a result of the excessive amounts of inventory and this has kept packers on the defensive as far as bidding for live inventory.
The good news hidden in this scenario is that the volume in the boxed beef trade is increasing as the cutout values drop, which should help keep the supplies from becoming burdensome in the weeks ahead.
The futures market has shown signs of turning in recent trading, possibly indicating a change from the bearish sentiment that has hung over the market lately. With finished supplies of cattle expected to decrease in the next few months and if demand can begin to pick up with the lower cutout values, the prospects for a price rally are improving.
With the futures still holding premiums with the deferred contracts, a strong rally will not be expected unless the nearby contracts gain against the deferred, reflecting a shrinking supply of cattle. Therefore producers are urged to stay current and watch for signs of any price improvements as reflected in market action.
The hog market has absorbed a tremendous amount of bad news over the past year or so, beginning with the H1N1 flu which devastated the market for no real substantiated reason.
Since the beginning of October, there appears to be a change in sentiment taking place toward the hog market. Prices have stabilized in both the live price as well as the pork product cutout. There is still a chance that the H1N1 virus could affect the market adversely if there is an epidemic, but the probability is becoming more remote as vaccines are becoming more readily available.
The key from this point forward will be demand, since numbers are still not declining as fast as the trade has expected. If the export market resumes where it left off last year before the H1N1 scare cut demand, then there is little doubt prices would have a greater chance of sustaining higher levels.
With the U.S. dollar continuing to weaken, this hastens the possibility of increasing that foreign demand. Barring any major surprises in the next several weeks, prices should creep a little higher. Producers should keep aware that deferred prices are at an extreme premium and can take advantage of those premiums to lock-in inventories.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
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