April has started out with a positive push in livestock prices.
Tightening supplies in both cattle and hogs has brought on speculation that livestock prices will continue to move higher through the remainder of the year.
The hedge and commodity funds have been extremely active in buying futures contracts in both helping propel these markets to new yearly highs.
These advances in prices have dampened the demand for both beef and pork in recent weeks and will threaten a continuation of these strong upward moves.
The cattle market has advanced to over $100 per hundredweight live and $160/cwt. dressed basis the Midwest, as packers scramble to acquire inventory during the first week of April.
The aggressiveness was aided by the advance in futures which allowed the packers to protect their inventories while acquiring that inventory. The problem is that the sharp advance in live prices has forced the packer to try to keep cutout prices high to maintain a solid profit margin. However, the sharp advances in the beef cutouts have diminished demand at the same time.
With the U.S. Department of Agriculture approving the import of Brazilian beef this past week, supplies will eventually be more than adequate to fight this shrinking demand. As we move into the later part of the spring, the supplies of cattle are expected to increase and the natural seasonal pattern should take hold. This should bring about a decline in prices in the summer months.
Producers should not ignore the fact that opportunities to lock-in profits are becoming available with these recent advances in prices, and should take advantage of the current strength.
The hog market is experiencing a situation similar to the cattle. Since the USDA Hogs and Pigs Report, the hog market has shown consistent gains in price, reflecting the shrinking herd size. This has brought back prices for live hogs not seen since 2008.
At the same time, pork cutouts have advanced to new 2010 highs and levels not seen since the summer of 2008. Like the cattle, the reduced supplies of animals has prompted a supply-oriented rally in the hogs.
The problem will arise, like the cattle, that demand is shrinking with the higher pork cutouts. It is not likely that we will see a significant change in the overall inventory of hogs in the next few months. So the battle will be between the consumer and his pocketbook and the dwindling supply of pork.
Since the demand is more flexible that the supply, one would have to deduce that eventually the high prices will take care of the high prices. This should alert producers to think in a larger scale and use extreme rallies in hog prices to lock-in inventories.
Unless we see significant changes in the economic situation in the near future, the likelihood of a spring high for both cattle and hogs is close at hand.
<center>•••</center><i>Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.</i>
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Discussion
Livestock Angles: April starts with positive push
Originally published in the April 16, 2010, print edition.
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