It would appear the cattle and hog futures markets are attempting to anticipate a turn in the livestock markets based upon the action taking place as we moved into the first week of July. All livestock futures are now carrying a premium to the cash trade in each category which suggests positive feelings toward future cash prices. This change in attitude appears to have come from the increase in movement in the product of each sector of the cattle, feeder cattle and hogs. The next few weeks will either confirm that lows are being established or whether this was merely a short covering rally in the bear markets.
As for the cattle market, the recent increase in beef movement has been the trigger which sent the futures market from a discount to a premium to cash. The fact that there continues to be a number of heavy cattle available could hurt the cash trade while the futures try to continue a rally. However, if the cash trade remains defensive and prices do not stabilize and remain weak, the likelihood of further weakness could develop.
The next few weeks are likely going to be crucial to the near term direction of the cattle market. The longer term outlook will obviously depend on how fast the cattle market reduces the heavy cattle and the recovery of the economy.
The hog market continues to be a study in contrasts. The cash trade continues to remain weak and the futures market continues to anticipate the upturn in the cash prices.
Demand for pork has remained a positive throughout the decline in cash prices, but the hog numbers remain large and this offsets the increase in demand. This has left cash and futures to remain hovering near recent yearly lows.
Based on recent statistics released by the U.S. Department of Agriculture’s Cold Storage report, there is still plenty of pork in storage. This is one of the reasons hogs have not responded well in price appreciation despite the good demand for pork. This more than likely will keep hogs from any sharp continued rallies in price until supplies are drawn down. Therefore, the outlook for hog prices is a little less optimistic until hog numbers are reduced and/or demand grows enough to offset the supply.