Hogs: Futures may be hitting a little psychological ceiling up in the $68 area on the February. Officially, most short term fundamental issues are supportive. We have the storm hitting today and higher cash hog and wholesale pork prices. However, traders do have to wonder how long this “wonder rally” can last. Cash hog prices have rallied about $7 from the day before Thanksgiving to current. However, wholesale pork prices, even with today’s $1.10 gain, are almost unchanged during this time. This has pushed packing margins into the red. We may see some talk of lower than expected Saturday kill levels in the next two weeks to correct some of that spread. We do look for futures prices to hold up here this week but for lower trade to show next week. Our only real price disagreement with current futures is that perhaps summer contracts are just a little under-priced. With that in mind, and the appearance of weakness on the Feb, we will reapply that June/February spread.
Cattle: Cash cattle traded moderately in the north at $136. That is up slightly from last week’s mostly $135 and $136 trading. It is also probably considered a disappointment. The trade had been hoping $1 higher live action would be seen. On a dressed northern basis that would be $1 to $2 higher. Back on the south, they’re looking at $84 bids in Texas against asking prices of $86 and $87. Last week’s live based trading was $84 and $85. In the big picture, we feel beef demand has hit the worst that it will and that storms in the north will help some of the current supply pressure. We view dips in futures as buying opportunities.
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