Livestock Angles: Beef prices look to remain strong

May 23, 2008 03:06 am

— The livestock markets have experienced a strong rally during the first week of May due in part to strong export business and speculation.
The cattle market rally was lead by a sharply higher futures market during the week ending May 9. Most of the buying in the futures could be attributed to fund buying or, in other words, speculation. The fundamentals of the market are currently not supporting the higher prices, but because of the strong premiums offered by the futures, the packers were able to improve their bids for live inventory.
Beef cutouts have remained above $150 per hundredweight basis choice for most of the week of May 9, encouraging the speculation that prices were going to continue to remain strong. With the agreement of South Korea to begin importing American beef once again and the strength in the hog market, this along with the fund buying overwhelmed the futures and drove prices higher.
The caveat will be if we do not see beef cutouts improve with increased volume in the boxed trade, then this will leave the cattle market vulnerable to a price correction. Packers are thought to have a fair amount of contract cattle to call upon in the next several weeks which could quiet down the live market.
There is a strong belief by speculators that because of the high grain prices, herd liquidation will force cattle prices higher in the upcoming months.
This is an interesting scenario in a faltering economy that could have the opposite effect. Producers should be leery of current rallies and protect short-term inventories.
The hog market has continued on its trek to higher levels over the past month. Led by strong demand for pork product both domestic and export, cash prices have moved above the $60/cwt. basis the Midwest.
Pork cuts have also continued to demonstrate strength moving to their highest levels in a year. All of this strength has come despite the fact that slaughter is at an all-time high, reflecting the strong demand for pork.
Once again there is a belief among speculators that the high cost of feed is causing a liquidation of the hog herd and that price will be stronger in the months ahead. This has created strong premiums in the deferred futures contracts. With seasonal tendencies usually topping at this time of the year, and the market overbought, producers should look at the excessive premiums to protect inventories.

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