The livestock markets are in the midst of a rally as we start the new year with weather being the major catalyst behind the strength. The question now is, will this be the trend for the year or is this just a recovery in the current bear markets that have been in place through the last half of 2009.
The cattle market ignited the last week of the year as packers became aggressive in their attempts to acquire live inventory. Winter weather became disruptive to the northern cattle producing areas while an impending storm was threatening the southern cattle producing areas the following week, which added the urgency in the procurement of immediate need inventories by the packers.
The only thing that still does not fit in this scenario is the fact that the movement of beef continues to be extremely light, which continues to reflect a weak demand for beef. The beef cutout has yet to get back to the key area of $140 per hundredweight basis choice reflecting the soft demand for product despite the fact that reduced slaughter has lowered the quantity of available beef product.
The U.S. dollar has gained strength over the past few weeks and because of this, export business is expected to decline because of the exchange rate making U.S. products more expensive. Throw in the struggling economies around the world and the scenario for a sluggish beef market has changed little. Unless there are some major fundamental changes in the weeks ahead, the approach to the cattle market should continue to be one of caution. Therefore, producers are advised to continue to use protection and lock-in inventories on any strength in the market on a week-to-week basis.
The hog market returned to life in the last week of the year after suffering a small downturn during the Christmas holiday week. Weather became a big disruption as snow and cold limited hog marketing during the last few weeks of 2009.
On Dec. 30 the U.S. Department of Agriculture released a Quarterly Hogs and Pigs Report. The findings were as follows: all hogs and pigs on Dec. 1, 98 percent; kept for breeding, 97 percent; and kept for marketing, 98 percent. The report was seen as neutral as it came close to pre-report expectations. This indicated that the large contraction that has been anticipated for months has not really come to fruition. The reaction in the futures was bull spreading; in other words, buying the front months and selling the deferred because of the large contraction in the hog industry.
It is quite possible that the weather could keep a firm undertone to the market for a few more weeks. The economy and the stronger U.S. dollar could decrease demand and keep any long-term rallies in check. Because of the large premiums still offered by the spring and summer futures, producers should consider protecting these timeframe inventories.
