The cattle and hog markets seem to continually move in opposite directions. When one market is enjoying better prices, the other one seems to be faltering and heading lower.
This appears to represent the weak demand and the fact that consumers are still heading to the most economical meat available at the time of purchase.
As for the cattle market, after beef cutouts slipped below the $140 per hundredweight level basis choice, the volume in the boxed beef trade again began to pick up. This coupled with an increasing hide and offal value, allowed the packer increased margins and the cash trade began to stabilize after ducking under $80/cwt. basis the Midwest.
It is quite obvious that the price of beef at the wholesale level has dictated what the live price paid to the producer all year with supply have little effect on determining the final price.
If the economy does not improve appreciably as we move into the new year, then the possibility of long-term price gains in finished prices seems remote.
On Dec. 18, the U.S. Department of Agriculture released a monthly Cattle on Feed Report which indicated that the number of cattle on feed as of Dec. 1 was 99 percent of the previous year. The placements during November were 92 percent and marketed during November were 104 percent of a year earlier.
The report was seen as friendly in all categories as it fell below analysts’ expectations. This will likely bring prices moderately higher into the new year.
However, if the economy fails to improve rapidly, the results of the cattle market are destined to remain the same in a slow downward drift from a decreasing demand scenario. Producers should continue to take a cautious approach to the market and use rallies to protect inventories.
The hog market has enjoyed a nice rally through the entire first half of December. As we moved into the holiday week near the end of the month, prices began to falter as pork cuts exceeded $70/cwt. for the first time in over a year.
The volume in the pork product trade immediately slowed indicating a reluctance by retailers to extend to these price levels. Once again demand was thwarted by price in comparison to the cheaper meats such as turkey, chicken and beef.
So far there has been little evidence of any serious herd reduction in the hog industry. With ample supplies available of all meats the competition by the consumer will dictate the future for each different meat.
The weak dollar has assisted in the recent rally as it has made the export of pork reasonable to our foreign trade. Lately, the dollar has found renewed strength and this could dampen prospects for a continued strong export market.
With the futures showing strong premiums to the deferred contracts, producers should consider taking advantage of these premiums and protect some of their inventory.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
