HYPERLINK "http://www.allendale-inc.com/products/products.aspx" Allendale Livestock Wrap-Up for DATE \@ "M/d/yyyy" 6/24/2009
Hogs: The fact that pork prices are suffering in the face of little export demand is not surprising. The severity of this issue is surprising. Word from the cash product side of the industry suggests little change in the coming days. Another issue here was new comments from a Russian official who felt there was risk of swine flu from Canada. It was another reminder of how different their viewpoint is. Though there has been no connection between eating pork and H1N1, though there has been no pork found to have H1N1 in the food chain, they still believe it is a significant risk. The other concern we have is though they are concerned about Canadian supplies, let’s think clearly about their large neighbor just south of Canada who actively imports hogs from them? Essentially, do not expect Russia to lift its partial bans on U.S. or Canadian hogs/pork any time soon. Conspiracy theorists suggest they are just playing hardball so they can “buy U.S. pork cheaper”. We cannot subscribe to that idea. Prices are 20% to 30% cheaper already and there is no sign they are buying this “value”. We reported yesterday the pork cutout was down $4.43 in the past five days. Including today, that climbs to a $5.62 decline. For pricing though we did suggest prices in the past few days were getting above value and should get back to $60 we underestimated how much of a problem this product market has been. Though the market is mainly hitting the summer months our key concern is 1) December and 2) October futures. If we add more supplies from summer to fall/winter, how on Earth can they be suggesting prices will be steady with current, or at a slight decline. We have held off hedges for those two contracts on the hope this H1N1 issue would be solved by the summer’s end. We cannot hold out that hope right now. We can, and will, paint a very bullish price picture for summer 2010 and beyond. We cannot say late 2009 futures are correctly priced. See the Hedge Advice page for more info.
Cattle: Cattle starting moving in Nebraska at steady to lower prices early on. There was action on a live basis in Kansas and Texas at $81 though. That was $1 lower than last week’s trades and can be considered a disappointment. As we noted in the past few days, though the COF was supportive, it was only good for slaughters hitting in the fourth quarter of this year. Wholesale beef has stabilized but is not rallying. Lastly, we do not see a lot of demand for beef when the heat kicks in for the coming weeks. The other unspoken problem here is the apparent freefall in wholesale pork. If it’s not being exported we have to work with it here in the U.S. We are still using $80 as our objective for August.
Rich Nelson is the Director of Research at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com
