The livestock markets continue to chop around in fairly narrow trading ranges as we head into the end of May.
It would appear that as we go into summer, demand will be the major factor in determining the price direction for both cattle and hogs. As for the cattle market, sluggish would be the best way to describe the market as of late. With show lists at their smallest in months, the cattle market was barely able to sustain any sort of rally, indicating a softening in demand since last year.
On May 22, the U.S. Department of Agriculture released a Monthly Cattle on Feed Report which indicated the following: cattle on feed as of May 1, 97 percent; placements during April, 104 percent; and marketed during April, 93 percent. This report is seen as neutral as the numbers came in near analysts’ estimates.
Despite the fact that there are fewer cattle on feed in comparison to last year, weights are heavier than a year ago so total beef production remains high. This, coupled with a contracting economy, has taken its toll on cattle prices. Boxed beef movement has definitely declined over the past year and with ample competitive meat available demand for beef has suffered.
The action over the past few months continues to confirm that the cattle market remains in a bear market and rallies are not likely to be sustained for any length of time. However, because of the tighter numbers than a year ago, short bursts to higher prices could be expected from time to time. Producers should be aware of the premiums already given in the futures contracts and use these premiums to their advantage and lock-in profits when available.
The hog market has appeared to be a real roller coaster ride lately since the outbreak of the H1N1 virus.
The guilt by association sent the market reeling as prices quickly tumbled on the suspicion that eating or handling pork would cause a person to contract the disease. As cooler heads prevailed the market quickly rebounded as fast as it dropped but not fully recovering what it had lost. It now appears that the hog market is beginning to stabilize and business is returning to normal once again.
After this recent debacle the question now becomes, will the demand for pork products return to where it was prior to this needless scare? Since pork is probably the most reasonable meat or protein available for the consumer, the answer probably is yes.
Because of the economic situation however, sustained rallies are not likely. Considering the premiums offered by the deferred hog contracts, producers should take advantage of these premiums and lock-in any potential profits.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.