Hogs: Word that USDA would buy $50 million in pork to support prices did not do too much to futures today. Instead, the trade is in a holding pattern waiting to see whether wholesale pork and cash hogs were going to talk as the market believes. It appears that market talk is on target. Yesterday wholesale pork fell 58 cents. This afternoon, the pork report showed a $1.12 drop. It appears we have that peak we have been waiting for. Earlier this week we sold 25% of expected marketings for producers using December and February futures. Early next week we may extend that amount.
Cattle: It is amazing to see today’s December cattle trade go down and attempt to retest those 83.40 lows posted in early October. Cash cattle traded in Nebraska at $2 to $3 lower on a dressed basis at $131 and $132. That is down the equivalent of $1 lower on a live basis. Live based trades last week averaged $87. What is interesting is using today’s futures close, December is implying cash cattle will trade down to $83 at the end of December. Essentially this market is suggesting cash cattle will fall very close to the summer lows of $81. That is quite a bit pessimistic. While we must respect the fact slaughter levels will go from under last year (now) to above last year levels (mid December through March) the bigger question is about demand. Will we have better beef demand one to three months from now than we had in the summer? While unemployment has another two months of increasing still to do, does that correlate with beef demand? Or is it more important that the economy is growing? The problem that we have here is there are no set rules to beef demand coming out of recessions. We cannot go back to the other severe recession (1981-1983) and see a set pattern. In some recessions, unemployment has no bearing on beef demand, it is economic growth. Essentially, right now we are flying blind and that is not a good position to be in for trading. We would love to say this market has moved into undervalued territory and it is time to buy but we cannot say it is time just yet. Right now, this market is in a bearish parade. After the first quarter, it is easy to say we can resume being bullish…Rich Nelson
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