The cattle market has been on an improving mode during the first half of August with cash prices rebounding to $100 per hundredweight basis the Midwest by the middle of the month.
Strong beef cutouts allowed the packer to be more aggressive in bidding for live inventories, creating the upswing in prices. It appears export business was responsible for the underlying strength in the boxed beef market as the U.S. dollar was dipping to new lows on the year.
This made U.S. beef attractive in the export arena and thus increased sales. As beef cutout levels have increased, the domestic demand seems to be slowing, reflecting the poor economic conditions here in the United States. With the U.S. dollar now rebounding rapidly over the past few days, the export market for beef and other commodities may begin to slow and that would have a negative effect on current cattle prices.
According to the recent U.S. Department of Agriculture Cattle on Feed Report, the number of market-ready cattle should be on the decline over the next several months which should offset the weaker demand at these higher prices. Therefore, it would appear that the cattle market could slip into a trading range over the next several weeks or more as supply and demand come to more or less an equilibrium.
The volatility in the futures market over the past few weeks has been the direct influence of the commodity funds which have liquidated many of their positions in response to the politics in Washington. This nervous and erratic market action is expected to continue until the funds have liquidated down their positions to more comfortable levels.
Because of the uneasiness in the cattle market producers should take advantage of both the excessive premiums and any rallies to lock-in inventories.
The hog market has had a tremendous rally over the past month. However is would now appear that prices are about to see a correction in the weeks ahead. The seasonal tendency in this timeframe is to peak and hog prices to decline into the fall.
The fact that the pork cutout has nearly reached $95/cwt. has decreased the demand for product and the packer has already backed down his bids for live inventory are the first clues the rally is ending.
Volume in the pork trade has dropped significantly in recent days reflecting the reluctance of the retailer to pay more for the product. On the other hand, the export market has been good and helped support the market all year long.
With the recent strength in the U.S. dollar, it will be crucial to see if this export demand stays as strong as the previous half year. Producers should remain current with marketings and use any strength in the market to lock-in inventories. Premiums in deferred futures remain extremely high and could present positive hedging ideas.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.