Published: May 29, 2008 03:28 pm            

Livestock Angles: Cattle advance, hogs lose steam

Originally published in the May 30, 2008, print edition.

The cattle market has continued to advance over the past several weeks to levels near the highs established at the beginning of the year.

Beef cutouts have been able to maintain above the $150 per hundredweight level basis choice for an extended period of time. This has allowed the packer to maintain a positive profit margin, thus the firmness in the live market as well as an advancing futures market which continues to lead the cash.

There has been a lot of fund buying showing up in the futures market lately, pushing the prices higher by the sheer quantities of buy orders. This has added much optimism to the overall psychology of the market. The current fundamentals would suggest that there is an adequate number of cattle to meet the demand needs at this juncture.

However, with the positive attitudes toward the market, prices have been able to overcome these negatives. The problem now is that with the higher cutout values can demand remain constant or even grow in this economic environment.

The volume in the boxed beef trade has begun to slow as it has in the past above the $150/cwt. level basis choice. To the degree that most of the recent buying in the marketplace has been speculative in nature, it would seem that cattle prices may be a bit vulnerable to a correction in the next week or two.

The seasonal bias is for a top at this time of the year with prices drifting lower into the fall. Therefore, producers should use the current strength in the market to lock-in or move inventory.

The hog market has at the very least run out of steam after a good rally that extended further than most in the trade had anticipated. Seasonally, this recent high in the hogs would be right on schedule and prices would normally drift off into the fall months.

However, if demand for pork continues to expand and grain prices stay high, it would be conceivable that the hog market could resume an uptrend and defy the seasonal patterns. That is probably not likely considering the economic turmoil that is currently plaguing the consumer at this time.

It is highly likely that we have seen some liquidation in the hog herd over the past several months due to the high grain prices and expectations are that the fourth quarter could see record prices for hogs. For this to happen several things would have to fall into place which would be optimistic at this time.

Therefore, it is likely we will see the hog market consolidate in a price range at these higher levels for a period of time. Considering the premiums the market is now providing, producers should take advantage of this situation and lock-in inventories.

        

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