Hogs: Futures spent most of the day on Wednesday monitoring the corn market. Corn prices, at near limit up, will discourage hog producers from starting that expansion we noted in recent days. Keep in mind, our comments regarding expansion related to pork production and not the breeding herd. We consider anything less than a continuous 2.5% contraction in breeding herd numbers to be expansion. That is due to productivity gains.
Technically higher corn prices should impact only far deferred futures. However, some could argue sharply higher corn prices could make producers market hogs a little earlier than expected.
Current carcass weights are running 1% over last year at 201 lbs. Seasonally, we are suggesting it is time to trade this market as a sideways range. Cash hog prices fell in five of the past six days. Packers are actively very defensively these days as a few plants will be down on Friday, almost none will run on Saturday, and all plants will be quiet on Monday. While it is time to suggest a sideways range is due we are not bearish for summer pricing. A solid argument can be made to begin hedges for producers…Rich Nelson
Cattle: Some would suggest with August now taking the lead as the front month contract that it may need to come up to June’s expiration level of 91.25. It is not too realistic to expect that, but you will hear some people raising that idea.
One positive factor in Wednesday's higher trade was the talk of cash cattle sales at $91. That is a rebound from yesterday’s $90 action. It was also impressive to see it did that in the face of a lower stock market. Lastly, some support could be garnered by the higher corn prices. Hypothetically, it could inhibit placements into feedlots (which affect the December contract) and encourage producers to market ready cattle a little earlier (which reduces weights)….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.