Published: November 26, 2008 04:37 pm            

Livestock Angles: Tight cattle squeeze packers

Originally published in the Nov. 14, 2008, print edition.

The cattle market is struggling within itself as we move into November.

This period should have the tightest numbers of available cattle while at the same time demand has become a real question mark. According to the U.S. Department of Agriculture Cattle on Feed Reports and the placements recorded in previous months, numbers of market-ready cattle should be at their tightest now into December.

This should force packers into a squeeze and therefore force prices higher for live cattle. However, the dilemma comes from a weakening demand base as the economic conditions worldwide continue to deteriorate which in turn could effect the ability of the packer to pay higher prices because of shrinking margins.

The evidence of tighter supplies has already surfaced as beef cutouts have strengthened to rally back over the $150 per hundredweight level basis choice. Volume in the boxed beef movement has also picked up as the lower prices have attracted retailers to the cheaper wholesale prices.

With the U.S. dollar on the rise once again, the export market appears to be slowing and will dip into overall demand for U.S. beef. Which side of the fundamental equation will dominate over the next few weeks will determine the fate of cattle prices in the weeks ahead. At this point, one would expect that the cash market will fare much better than the futures and cash will likely go premium to the futures in the near term.

Producers are still urged to take advantage of any strength to lock-in any inventories where profits are available.

The hog market has been on a price slide since August. Prices have dropped more than $30/cwt. from the highs in August to near $50/cwt. now.

At the same time, pork cutouts have dropped accordingly reflecting the availability of product from the heavy slaughter seen during the period.

As with the cattle, the economic situation has left demand a question mark in the months ahead. The fact that pork is extremely reasonable in comparison to all other competitive meats could be a plus as numbers diminish in the months ahead.

Currently the hog market is oversold and it appears that the pork cutouts have reached a level that the retailers have increased their interest in acquiring product which should begin to stabilize this market in all aspects.

Another positive for the hog market is and has been the export market which continues to be greater than last year. Therefore, the outlook for a recovery in hog prices seems to be forthcoming in the weeks ahead. However, caution is still advised in protecting inventories since the futures market deferred contracts still carry too much premium and hedgers should use this to their advantage.

        

• Click to discuss this story with other readers on our forums.