Allendale Livestock Wrap-Up for 8/5/2009
Hogs: A confusing day in the lean hog futures was seen. Sharp losses in all contracts occurred shortly after the open this morning. By the end of the day, 2009 contracts were only posting moderate losses while 2010 contracts remained clearly under water. You cannot argue this is anything but a bear market. We all know hogs are backed up and packers will have fuller than expected slaughter schedules for the next couple weeks. Cash hog prices fell 50¢ to even up to $2 in direct to plant bids.
Also China banned pork from three U.S. plants and poultry from two plants. The three plants are Smithfield’s Tar Heel NC, John Morrel’s (Smithfield) Sioux City, Iowa and Seaboard’s Guymon Oklahoma operations. These are three of the largest plants in the States with daily kill capacities of 32,000, 15,000, and 16,000 head respectively. Another issue that some are tossing around right now is the idea this market is preparing for resurgence in H1N1 findings as we are a month away from the restart of flu season. Last night we posted the problem that has been bugging us: what if this lower level of demand lasts from summer and remains low through winter? There are some who would like to suggest a different idea: what is demand actually gets WORSE as we go into winter. If the media restarts its swine flu story when flu season gets going that is actually a possibility. We are not on board with that idea though.
Cattle: It could be argued the sharp losses this morning were strictly due to carryover pressure from the lean hog pit. However, we cannot say all of the pressure was pork-only action. The midday beef report indicated a heavier than expected drop in beef prices today. With all of this news going on we still like the idea of using these dips to buy deferred futures. Towards the end of the year is where supplies will drop and hopefully demand is a little better.
Rich Nelson is 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
