Hogs: Futures grabbed a hold of yesterday’s Cold Storage news and ran with it. On the charts the move looked strong. For news, the reason this run sounds exciting is that stocks of pork came in lower than expected. The market automatically assumes that means exports were stronger. That is one problem the pork industry has with USDA data. As we detailed last night, meat balance sheets are made with domestic disappearance as the indicator of price, not ending stocks like in grains. The problem pork has is that we do not get any timely information on exports. We just got July numbers in last week! That means we have a lot of guesses but few good timely answers here. The trade saw ending stocks were not as large as expected and is assuming that means the export situation is worked out. We just cannot jump on that bandwagon here. The other thing that is interesting is the trade had no negative reaction to newswires releasing average guesses for Friday’s Hogs and Pigs report. You can find those numbers, and Allendale’s, on the AM Livestock Fundamentals page of this report. As noted in our AM comments, a breeding herd that is 2.7% smaller means very little reduction in pork production after you figure in these phenomenal productivity gains in the past year or two. Lastly, the other factor we must consider here is the short term situation. Yesterday the pork cutout fell $1.29. This afternoon it was down $1.76. If pork is falling then cash hogs will be falling. If cash hogs are falling then futures should be very concerned about their relatively minor discount to cash hogs right now. Bottom line here is today’s move looked good on the charts but we cannot say this is the start of a new up move.
Cattle: Nebraska were at $129 today. That equals last week’s trade which implies there may be some $130 or $131 sales late this afternoon or tomorrow. Keep in mind Nebraska traded $129 last week. Normally, we would jump all over this good news. We are a little hesitant to jump on board just yet though. Wholesale beef prices were mixed to lower yesterday and today. The game plan is this, we like cattle for a longer term move into December. Our models suggest cash cattle could go from last week’s $84 and $84.50 on up to $88. That gives December futures a chance at $90. For trading, this market still has to break out of the downtrend at 86.50 before we can get convinced the bull run has started.
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