Published: April 24, 2008 10:58 am            

Livestock Angles: Beef production up from last year

Originally published in the April 18, 2008, print edition.

The cattle market appears to be finding some sort of low over the past few weeks.

The beef cutouts have experienced a fairly decent rally with improved volume in the boxed beef trade. Along with this, the futures market has posted a rally from its recent lows near the first of April at $86.10 basis the April contract.

This would be the typical time frame for a seasonal low in the cattle market and the anticipation of this seasonal low has brought about good short-covering and speculative buying in the futures. It is more than likely that this will prove to be only a temporary low as fundamentals still would not support a long-term change in the current bear market.

Cattle weights continue to run well above a year ago, which keeps total beef production well above last year levels. With placement and on-feed numbers given by the U.S. Department of Agriculture, there should be an ample supply of cattle for the next several months.

With competitive meat supplies abundant, the likelihood that beef cutouts could surpass their resistance area of $150 per hundredweight is not good in the months ahead. The futures are also carrying too much premium in the deferred contracts, which usually is negative, causing producers to hold cattle back and keep weights up.

Over the next several weeks it is possible that the cattle market will run out of steam and resume its downward trend. Therefore, producers should be patient and use this rally opportunity to lock-in summer and fall inventories.

The hog market has also seen a recovery from the downtrend that it has been experiencing for several months. Cash prices have rebounded nicely in the past few weeks as packers’ margins have improved allowing packers to aggressively seek live inventories.

Pork cutouts have bounced in recent weeks as demand for pork products remain a bright spot as they have all year. The problem has been the numbers of hogs have been far greater than the USDA had projected and that abundance of hogs has overwhelmed the marketplace.

This is also a seasonal time for hogs to bottom and rally into the early summer months. This has brought about good short covering in the futures and renewed speculative interest on the long side of the market.

The problem remains that if the slaughter rate remains as high as it is currently, then the prospects of a long-term sustained rally are unlikely. Despite the fact that demand for pork products will remain high, the sheer numbers of hogs being marketed will keep any rallies short lived.

Producers should take advantage of the extremely high premiums offered in the deferred futures and lock-in summer and fall inventories.

        

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