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Livestock Angles: Demand loss drops beef, pork
Originally published in the November 13, 2009, print edition.
The livestock markets for the most part have had some price improvement during the first week of November. But when the unemployment number was released on Nov. 6, the livestock markets quickly went into a defensive mode. The threat of shrinking demand for both beef and pork sent the markets sliding to the downside in a hurry.
The cattle market was already struggling when the unemployment news was released. The beef cutout values have exceeded the $140 per hundredweight level basis choice and demand for beef had already begun to suffer.
This area has proven to be a nemesis for demand all year and with discouraging news thwarted the current underlying friendly sentiment in the market. Marketable cattle numbers are still at the lowest of the year, however supply is not and will not be the driving force behind the market through the remainder of the year.
Looking ahead, the cattle market may be able to stabilize over the next few weeks as supply and demand equalize to some extent. However, as ready cattle numbers increase in the forthcoming weeks, prices are likely to weaken. The only caveat to this scenario would be the weather. If winter becomes severe in cattle feeding areas, prices could improve rather rapidly for a short period of time.
The overall outlook continues to be plagued by the poor economic conditions surrounding the world economies in general. Producers should react defensively to any rallies that provide opportunities to lock in profits on inventories.
The hog market has seen a very nice recovery over the past several months. Direct hog prices have advanced from the mid $40s/cwt. lean basis the Midwest during August to the mid $50s/cwt. lean basis the Midwest during the first week of November.
Demand for pork seems to have been the main catalyst behind the rally. Pork became the value leader in the meat complex as competitive meats became overvalued in comparison to pork prices. Now that pork cutout value has rise to near $60/cwt., that advantage of great value has disappeared and the movement of pork product is slowing.
With ample supplies of pork in coolers and the increase in product values and Thanksgiving just around the corner, look for packers to become more selective in their bidding for live inventory. The fact that the unemployment number cast a negative shadow over the market also does not bode well for the near term outlook for hog prices.
Producers should take advantage of the premiums offered and lock in profits if available for their inventory through the remainder of the year.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
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