Hogs: Thursday's sharply lower trade may have confirmed a top has been made for cash hogs and cash pork. This also marks the last hurrah for cash hogs and futures.
Typically, the buildup in slaughter rates on a seasonal basis from September pushes prices lower into fall/winter. Something of interest here is that October and December 2008 contracts (2009 is excluded due to swine flu) expired at 65.78 and 56.11 respectively. The 2010 contracts, even after today’s decline, are 16% and 31% higher than today.
We are not saying 2008 is a good comparison to this year; it is not. There are clear reasons why 2010 is a bull year and holds a premium. However, we must note fall/winter contracts near the mid $70s are a great opportunity for producers.
In other news, there is no new news on the poultry trade issue with Russia. It still appears it will be September at the earliest before trade resumes. It was also interesting to see hog futures started off lower and pushed hard all day. There was no bullish effect from corn prices today. For price direction the top we have been looking has now happened. Producers should wrap up sales. Speculators should work on neutral to bearish positions…Rich Nelson
Cattle: The trade has been having a hard time finding fundamental justification for the recent bullish price moves in cattle futures. Other than fund buying, we cannot find any new news that suggesting a significant problem with beef supplies.
We will point out one thing here which could be a factor. Some in the financial community are feeling better about the economy. We cannot suggest there is an immediate relationship between the economy and beef demand, but some outside market traders may think so. (Our studies have suggested employment is the biggest factor among economic indicators.)
The biggest driver right now is likely cash cattle. Bids are $91 and $92 against $95 and $96. As of this writing, we have not seen any active trading yet. For price direction we feel current levels are overvalued. Cash cattle should post a moderate decline into the end of the month. For the big picture, we are long-term bulls on deferred futures…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.