— Weather has been the major influence on the livestock markets so far during February. The frequent snow storms throughout the country have disrupted both the marketing of live inventories and the retail sales of beef and pork product. This has supported, for the most part, higher cash prices as we move into the latter half of February.
The cattle market has seen an abrupt rally since the beginning of the month primarily due to the heavy snows that fell throughout the major cattle producing areas. This not only disrupted the timely marketing of cattle, but has set back the gains on many cattle because of the cold and wet conditions, dropping the finished weight of market-ready cattle.
As the middle of February approached, cattle were trading as high as $89.50 per hundredweight basis the Midwest as packers scrambled to meet slaughter needs. Packers have cut back the kill to protect their margins which have drifted back into the red since the beef cutouts have dropped back under the $140/cwt. level basis choice in the attempt to force the retailers to pay up for product.
The problem will once again arise as the cutout price moves above the $140/cwt. level basis choice, the demand for beef product begins to weaken, forcing the contraction by the packer to pay the higher price for live inventory. Obviously, it is unlikely that these winter storms will last for months — or at least we hope not — and the cattle market will be faced with the same fundamental problems it has faced for the past year.
That is, demand is the major determining factor in the price of cattle, not supply. This is not expected to change unless there is a major change in the economic conditions worldwide. Producers should continue to approach the cattle market with skepticism and use the current rallies to lock-in inventories.
The hog prices also benefited from the recent winter storms, but now seem to have run into some retail resistance as pork cutouts have turned lower. This has leveled off cash prices as packers become more selective in their bidding for live inventory.
The fact that the U.S. dollar has found some recent strength from the Greece credit situation has put into question the export demand and the pork cutout has slipped as a protective reaction. This continues to bring the fact that the meat markets are influenced more by demand than supply and the hog market is no exception. As we approach the Easter holiday, an increase in demand for hams could bring about another rally in the cash as packers accumulate inventory to meet this short-term demand.
The overall picture remains the same and that is we are still in a demand-driven market until there are some major changes in the world economies, the likelihood of any sustained rallies are not foreseen at this time. Therefore, producers should use any rallies to protect inventories and take advantage of the premiums offered.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.
