The livestock markets have improved over the past several weeks, but the road ahead appears to have a few bumps.
The reaction to the H1N1 influenza and the repercussions it may have on the livestock markets could play a key role in the direction of both cattle and hog prices. Also the demand for both pork and beef will determine what the summer months will hold as far as price direction for the livestock markets.
The cattle market has finally responded to the lighter numbers of cattle on feed as supplies of market-ready cattle have decreased which has forced the packers to scramble to accumulate inventory. This has brought cash prices near the $90/cwt. level basis the Midwest for the first time in months.
At the same time the beef cutouts have advanced back above the $150/cwt. level basis choice reflecting the reduction in slaughter over the past 60 days. However, as the cutouts have moved higher, the volume in the boxed beef trade has slower declined reflecting a reluctance by the retail sector to aggressively purchase product at these higher prices.
Depending on how the public views the concerns over the H1N1 flu and the effects that may have on meat consumption will ultimately help determine where cattle prices may head. Regardless of that reaction, demand will be the overwhelming price determinant as the summer months approach since supplies of cattle will likely be at their tightest for the entire year.
Producers should be extremely careful and willing to lock-in profits whenever available in the weeks ahead.
The hog market has also finally responded to the declining numbers as cash prices have advanced during the middle of April. The futures market has been extremely sluggish at the same time, but only because of the large premiums being carried by the late-spring and summer contracts.
These premiums were the forerunner reflecting the pending advance in the cash prices as the trade had anticipated the decline in numbers for months. Demand for pork has remained good as evidenced in the latest Cold Storage Report released by the U.S. Department of Agriculture, which indicated stocks were not as heavy as anticipated.
This despite the fact that hog slaughter continued to remain high, producing vast amounts of product. But when compared to competitive meats, pork still represents the best value to the consumer and is being recognized as such by the current off take of pork supplies.
The question now is how will this Swine Flu effect the consumer of pork and will it damage the demand for pork product since the association in the name of the virus. Producers should be cognizant of this and use the current premiums to protect their inventories.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.