Allendale Livestock Wrap-Up for 10/7/2009
Hogs: Back in mid-August USDA was asked to buy pork. On Sept. 3 they announced a $30 million purchase. Today’s big run higher was due to talk from Congress encouraging USDA to purchase an additional $100 million in pork to support prices.
Hog Slaughter Transition: For around four weeks now, slaughter rates have been running about even with last year’s levels. That fits into USDA’s Hogs and Pigs report estimates which showed more than 180 lb. market hogs on Sept. 1, were -0.3% of previous year levels. Hogs in that weight range are slaughtered from Sept. 1 through Oct. 15 or so. USDA indicated the next market hog weight group will run 1.4% smaller than last year. That equates to a slaughter around 1% smaller than last year. There are hopes we are turning that point now. Having said that, we must point out lower slaughter compared with last year does not mean a peak in weekly slaughter for this winter period. Typically hog slaughter rises into late November/early December.
Cattle: Today there were some light cash cattle trades at $81.50. That was down $1.50 from last week. That puts it directly next to the summer lows of $81. We noted yesterday that the trade was getting a second round of bearishness built up as deliveries against the October contract were big. There is a “just get rid of em type mentality circulating in the feedlot industry right now. While we have been trying to stay with this downtrend for trading it is getting tempting to say that enough is enough. While a bearish case can be made for demand right now it is hard to see it lasting forever due to three factors:
1) Economic reports have shown improvement.
2) While employment reports are still a problem, they are down from spring/summer levels. A chart of monthly employment losses shows we will stop losing jobs in around two months.
3) Supplies of competing meats will be helpful. Pork is now crossing the border to below-last-year numbers. Chicken has completed one full year of contraction. It is now being compared with October 2008 (when contraction begun) and it is still under that level.
The chicken breeding herd info continues to contract even more. The chicken breeding herd is running 3% to 4% lower than last year and will be 6% lower by December. Bottom line here is we have many reasons to get bearish cattle. However, this is about getting to the point where we should be looking at this as opportunity rather than a time to panic.
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