Livestock Angles: Demand a drag on beef market

February 08, 2008 12:15 pm

— The cattle market continues to struggle as prices have remained defensive through the first month of the new year. Beef demand has been a real drag on the overall market as boxed beef trade has continued to be sluggish forcing the packer to scrutinize their bidding for live inventory.
Beef cutouts have again failed at the $150 per hundredweight area reflecting the reluctance of retailers to chase beef to higher levels with competitive meats at far cheaper prices.
With Canadian cattle moving south in greater numbers, the available supply of animals continues to be more than adequate to meet the disappointing demand for beef products.
There has been nothing new on the export market, particularly South Korea and Japan to bolster that area of demand.
The U.S. Department of Agriculture released a Monthly Cattle of Feed Report Jan. 25, which indicated the number of cattle on feed as of Jan. 1 at 101 percent of the previous year. Placements during December were 99 percent, while marketings were put at 101 percent of the prior year. The report was interpreted as bullish by some analysts, but the closing of the Tyson Emporia, Kan., slaughter facility overshadowed the report and futures prices were unable to advance as many had expected.
With the economic outlook questionable, the probability of a sustained rally in the cattle market seems rather remote at this time given the already weak demand for beef. Therefore, producers should use rallies to lock-in late winter and spring inventories.
The hog market has performed in just the opposite manner as the cattle in the past few weeks. Prices have finally begun to improve as numbers have begun to subside causing the packers to be more competitive in their bidding for live animals.
The decrease in numbers is partly due to the colder temperatures which have inhibited marketing and the fact that the bulge in animals is finally drawing to an end. Throughout this decline in hog prices, the demand for pork has been excellent, especially the export arena where growth has continued at a good pace.
Pork cutouts have moved higher in recent days which has improved the packers profit margins which in turn has allowed for more aggressive acquiring of live inventories. There has also been quite a bit of speculation that the herd is liquidating because of the high grain prices as evidenced in the high deferred futures contract prices.
Premiums in the futures market have remained high for several months and should provide producers the opportunity to protect their inventories into the summer and fall months.

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