Top may be in for hogs, cattle

Hogs: The week-to-date kill is running only 3% lower than last year. The previous four weeks, during that August “marketing hole,” all ran 6% to 8% lower. Is the marketing hole ending? Also of concern, Russia has asked the U.S. Department of Agriculture for more clarification on the safety of U.S. poultry. With the big salmonella scare going on in the egg industry, Russia is looking for any reason not to fulfill its promise to buy U.S. poultry. This news is slightly bearish to pork. We are growing a little more confident about picking a top here for trading. Producers should have 75% of expected marketings through April locked up.

Cattle: In just seven weeks, cash cattle have run from $91 to $100. This meteoric rise was made on continued good exports at the same time as consumers may have been sniffing around for a little extra beef. That consumer issue has been a surprise. Given housing and many other economic statistics you have to wonder how long that consumer interest could hold. For the long term (meaning through 2013) you have to be big bull to this market. For the short term, is $100 cash cattle during August a little overpriced? For cattle feeders, these are simply great prices that are too hard to pass up. We will finally take action and add to second half 2010 hedges. For trading we will make a bet that current prices are near the higher end of the range. As long as December futures expire between $95 and $102 (currently $100.27), the option strategy below will gain…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.

About the Author
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.

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