Published: July 01, 2008 05:50 pm            

Livestock Angles: Cattle firm up, lead by futures

Originally published in the June 27, 2008, print edition.

Cattle prices have firmed over the past few weeks mainly led by the futures market where heavy speculation has been the dominate feature.

Many funds have approached the market on the long side on the idea that because of high corn prices, cattle-on-feed numbers will be on the decline through the remainder of the year. This has put huge premiums in the futures prices and in particular the deferred contracts which have allowed the packers to increase their bids for live inventories.

At the same time cutout values have remained fairly stable above the $150 per hundredweight level which has kept packer margins in the black and been supportive to hold cash prices steady to higher.

On June 20, the U.S. Department of Agriculture released the Monthly Cattle on Feed Report as of June 1 which indicated on feed numbers at 96 percent of last year. The cattle placed during May was 88 percent, while the cattle marketed during May was 103 percent of the previous year. The report was seen as friendly as all categories were seen as supportive to prices.

One problem is that with the premiums historically large already will this reflect a typical buy-the-rumor, sell-the-fact situation. Another problem facing the cattle market is with the retail price of beef already at high levels will the consumer accept the higher prices at the retail level that the futures market is indicating.

In this current economic situation it will be a real challenge to see beef move at higher prices retail since volumes are down already this year and this has been at lower cutout prices. With the huge premiums offered by the futures, producers should be taking advantage of these premiums and protecting inventories.

The hog market has experienced a nice turn around during the past few weeks.

After watching prices tumble from their highs in May under heavy slaughter and slumping pork cutouts, prices began to rebound as pork product stabilized and slaughter decreased slightly igniting the turn around.

There has been increased speculation here as in the cattle by the funds on the anticipation that hog numbers will decline in the weeks ahead because of the high feed costs. This speculation has, as with the cattle, driven deferred contracts to historic premiums over current cash prices.

With the flooding in Iowa, several pork processing plants have shut down operations and this decrease in slaughter has supported the current rally. Pork cutouts have stabilized and begun to rally allowing the packer room to advance his bids for live inventories.

The same holds true for the hogs as with the cattle, the excessive premiums offered by the futures market give the producer an opportunity to protect inventories.

        

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