Hogs: In comments earlier this week, we noted the latest week included in this series showed the sow kill 14% larger than last year. If that pace continues, we can officially say we are back in the liquidation phase. The Canadian numbers are interesting. It would suggest they are suddenly interested in expansion. We cannot say we know of any Canadians who would back that story up.
Cattle: Follow through selling from this week's rejection of $116 on the April contract was seen. Part of Wednesday's moderate selling may have also been tied to estimates for Friday’s Cattle on Feed report.
The trade is in agreement that December saw another higher than last year Placement number. Most feel a large amount of calves and feeders were pushed straight into feedlots. The average guess suggests a large 14% more Placements were seen than last year. The argument for that high number is that higher cash cattle prices seen in December, and concerns about winter wheat viability in many areas, caused the big inflow. In fact, the average guess would equate out to the largest December inflow in five years!
Having made these points I will say clearly that our estimate is on the low end of the range. We suggest that based on the size of the price surge in sale barn prices that calf and feeder supplies are a little tighter than expected. Instead of a massive supply flow ready to go into feedlots, and a massive demand for them, that supplies were only larger than normal.
Our Placement number, the lowest of the group, is that only 2.8% more cattle were moved in. We suggest that by mid- to later February, Placements will finally switch to below last year numbers. Everyone agrees that the window of above last year Placements is closing. The disagreement comes as to the timing. As it stands, the average guess would imply ample slaughter cattle ready during the summer.
December Placements are marketed from May through September. In addition to the bearish Cattle on Feed estimates we can also point out wholesale beef prices were mixed today. This stops a string of seven business days of higher prices.
Having said this new news, most bigger picture items are still supportive. We are waiting on any word from the Chinese president’s visit regarding beef. There are hopes we can get mainland China back on board as a buyer of all U.S. beef products. We will give this market another three days then start looking for a place to buy…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.