The year 2006 was an interesting one, to say the least, in livestock markets.
The year 2007 would appear to be another year just like it, with plenty of surprises in store for both cattle and hog markets.
The past year in cattle has turned out to be a negative, as prices end up lower than where we started. More cattle on feed, which led to greater beef production, more than offset the increased demand that resurfaced during the year.
As we close out the calendar year, prices still appear to be in a continued slump as they hover near the $85 per hundredweight area basis the Midwest. Cutout values are also continuing their sluggishness as they seem range-bound near the low $140s/cwt. basis choice.
With the latest cold storage report showing more than 500,000 pounds of beef in storage as of the first of December, and still more cattle on feed than a year ago, a sustained rally would seem unlikely in this situation.
On Dec. 22, the U.S. Department of Agriculture released the Monthly Cattle on Feed Report, which indicated that as of Dec. 1, the following: on feed, 102 percent of a year earlier; placements during November, 92 percent of the previous year; and marketed during November, 106 percent of a year earlier. The report was seen as neutral to slightly friendly as the marketed number was at the low end of the estimates.
The near-term outlook will still be hampered by the current sluggish fundamentals and little price change is anticipated. The more long-term outlook for the year could be a little more promising as placements continue to drop, resulting in declining numbers on feed into the first quarter of the year. Therefore, we may see improving prices in the latter half of the upcoming year if this trend continues. Producers should protect short-term inventories on rallies.
The hog market actually had a fairly decent year as prices ended almost at the same level as they started. Good demand for pork — from both the domestic and export markets — has helped offset the large slaughter that was seen during the year. Cold storage numbers reflect little change in quantities in storage on a year-to-year basis, which reflects that good demand for product.
Expectations for the upcoming USDA Hogs and Pigs Report indicate the trade is looking for a slight increase — 1 percent — in the herd while the breeding herd and the hogs kept for marketing are also expected be 1 percent greater. These increases, if accurate, should not pose any major obstacle to the market as expected increases in demand should offset any increase in the hog herd.
The outlook for the hog market should therefore remain about the same as what we saw last year with seasonal tendencies for prices to peak in the late spring and bottom in the fall. Producers should use any rallies outside the previous year’s price ranges to lock-in inventories and remain current with marketing inventories.
Joe Teale is a commodity broker for Great Plains Commodity in Afton, Minn.