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So far April has been a good month for livestock prices because of tighter numbers of both cattle and hogs. According to the U.S. Department of Agriculture, based on recently released data, cattle and hog numbers are not expected to increase for the next several months.
The cash cattle market has moved back to the $100 per hundredweight live for the first time since 2008 as a result of the futures-led rally and the decreased number of market-ready cattle. Funds have been a large contributor to the recent rallies as speculation has dominated the atmosphere in the cattle market.
This speculation has driven the futures market higher on the anticipation of the reduced supplies as well as the thought that inflation is just around the corner. Beef cutouts have also moved higher into areas not seen in years, but at the cost of reduced demand for product.
The only strong demand continues to be for lean ground beef for hamburger, reflecting the hamburger society we now live in. The conflict between supply and demand should be at a pinnacle over the next 30 days and will determine how long the current rally will continue.
To give the supply bulls a boost, the USDA released the Monthly Cattle Feed Report on April 23. The results were as follows: On-feed as of April 1, 96 percent; placed in March, 103 percent; marketed in March, 104 percent. The report was seen as friendly to bullish primarily from the placement number, which was below trade estimates.
Obviously this supports the bulls supply argument and should be supportive to the deferred futures contracts due to the lower-than-expected placements. The only question left for the cattle market is whether demand will stay strong enough to support these price levels in the months ahead. If the economy continues to remain in the same condition, it does not seem possible as demand for beef has been on the decrease for several years and would likely not increase in this environment.
The hog market is also moving to price levels not seen since 2008. The decrease in available numbers, plus a renewed demand for exports, has pushed pork cutouts to over $90/cwt.
This has given the packers good margins and thus increased their aggressiveness to accumulate live inventory. Considering the USDA Hogs and Pigs report released last month, that the hog herd is currently contracting, the inventory of hogs will be lower than last year's for several more months.
This is likely to lend support to the hog prices despite the fact that seasonally this is the time of year hog prices peak. That is not to say that prices do not top in the near term, but that any drastic sell-off will be fairly well supported because of the reduced numbers.
Since the supply is pretty well known at this time, the demand will be the determining factor for the price movement through the summer months. With the large premiums carried by the summer and fall months, producers should consider locking in some inventory as a precaution.
Given the state of the economy at this time, and the prospect of increased taxes, the disposable income of most will be threatened and will have an adverse effect on the consumers' ability to maintain or even increase the demand for meat products. The old adage may once again prove to be true, that high prices cure high prices.
<center>•••</center><i>Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.</i>
