—
May has started with highly erratic and emotionally driven livestock markets. Both cattle and hogs were in a strong uptrend when suddenly changes in the world economic picture turned more clouded, the livestock prices retreated amongst fears that world demand would weaken for beef and pork.
The cattle once again moved above the $100 per hundredweight level basis choice in the Midwest on good inquiry for the packers. Beef cutouts have been moving higher for the past several months and hitting near record highs above the $170/cwt. mark basis choice. This at the expense of reduced sales but nonetheless reflecting the decreased numbers of cattle.
However, the supply side of the equation has been known for some time based on the U.S. Department of Agriculture Cattle on Feed Reports, and the unknown has been the demand side which appears to be reaching a maximum at this time. With all the uncertainties surrounding the economy at this time, it is likely that we are at high for the cattle market as we move into the summer months when more cattle should be available.
This does not mean that we are in for a significant drop or a rapid drop in prices, but for the most part these higher levels will be hard to maintain unless rapid changes that place in the economy soon. One thing to remember: Market uncertainty and fear are detrimental to bull markets. Therefore, producers should evaluate their particular situation and use any further strength to protect their inventories if necessary.
The hog market has followed in the footsteps of the cattle market and actually exceeded the cattle market by pressing into new highs on the futures market at $90.17 on May 5. The available numbers of hogs has also been the catalyst for the aggressive bidding by the packers in recent weeks.
There has been fairly strong demand for pork product at the same time, keeping the packer in positive margins, which has encouraged keeping the slaughter high. However as pork cutouts advanced to the $90/cwt., the movement of pork product has begun to diminish, reflecting some resistance by the retailer to forward and further procure product at these levels.
As with cattle, the supply side of the hog market remains a positive, but the demand side remains a large question because of the economic situation worldwide. Considering the premiums offered by the deferred Futures, producers should consider examining prospects and use this current strength to protect some of their inventory.
<center>...</center><i>Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.</i>
