Chinese buying a factor in pork, placements driving cattle

Hogs: Allendale has been looking at pricing in 2008, the last year of big Chinese pork purchases, as a model for this year’s action. The moves this summer have been very similar. Cash hogs and cash pork are now trying to price in the big supply increase that will continue to hit through October as Tuesday night’s chart showed. In addition to the supply increase, we have to factor in a lower level of Chinese buying for the fall/winter months. All hedgers should be 75% covered through the end of the year. Speculators should be trading from the short side with special emphasis on the October and December…Rich Nelson

Cattle: The build up in the total feedlot population, which we estimate 7.1% higher than last year as of Aug. 1, is due to the placement issue we mentioned in recent days. It is interesting how the trade hit the October contract the worst Wednesday even though this placement issue is an end of the year supply problem. Look for futures to remain in a duck and cover mode through Friday afternoon’s Cattle on Feed report. We will likely restart our bullish 2012 speculative trading after the report. Look for Q2 2012 to now be the focus of our very bullish bias…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.

About the Author

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA.

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