The past couple of weeks in the livestock markets have seen prices for both cattle and hogs come under pressure, both futures and cash. This despite some inclement weather throughout the entire Midwest which usually is short-term friendly to markets.
The cattle market has been struggling for quite some time and the past few weeks would exemplify that struggle. Despite the fact that many have looked for a rally for the past month, none has been able to materialize. The main reason seems to be that most prognosticators are basing their projections on current supplies of market-ready cattle. The fact is they are less than a year ago.
However, supply isn’t the major factor effecting the market at this time. Demand is key and the driving force behind the current cattle market pricing. Looking at the boxed beef cutouts over the past few weeks, once again above the $140 per hundredweight basis choice, has proven to be an area where buying interest dries up and the volume drops off significantly, and this time is no different. The psychology is unlikely to change in the near term, so rallies in the futures are still likely from time to time.
On Jan. 29, the U.S. Department of Agriculture released the semi-annual Cattle Inventory report. The findings were: all cattle and calves, and annual calf crop were both 99 percent as compared to a year ago.
The report was seen as slightly negative as the major categories were slightly above pre-report projections. Supplies are lower, but demand is weaker and so therefore, the price struggle will likely continue for cattle in the weeks ahead or until the economy rebounds bringing back greater demand for beef. Producers should take a cautious approach to the market and use rallies to lock-in and protect inventories.
The hog market has virtually followed the same pattern as the cattle market over the past several weeks. The same prognosticators are still focusing on supplies rather than demand to make their projections for hog prices.
The fact that pork cutouts moved well above the $70/cwt. level for a short time proved too much for buyers and the volume in the pork product trade slipped immediately to back under $70/cwt. This also shows that demand is the key to the meat trade regardless of whether it is pork, beef, chicken or turkey.
With the level of commodity fund activity in the futures market lately look for rallies to be generated by these funds from time to time, giving producers a chance to protect their inventories.
With the current futures contract at a discount to the hog index, a short-term rally is not out of the question. However, unless major fundamental changes take place in either the hog industry or the overall economy, long-term rallies are unlikely at this time.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
