Hogs: At least once per day, we hear clients ask, “When will grain go high enough to turn off demand?” Well, it already is. Chicken producers started liquidating in May. That was due mostly to low chicken prices from over expansion and from rising grain costs. Feedlots are losing $100 per head but are not cutting back yet. That leaves pork producers. They are coming off good profits this summer and will move into loss territory in October. Normally it takes six months of losses before production is lowered. In the days of $7 corn we would think the delay will not be as much. For market direction, the normal increase in production into fall/winter is causing hog prices to crumble. Our downside objective for December futures is $82…Rich Nelson
Cattle: It may be confusing to some to see cash cattle breaking, now for two weeks, and for wholesale beef to be rallying during this time. This is simply a Labor Day procurement issue. The trade expects wholesale beef to take a fall into early September as retailers are finished with their holiday procurement. Futures are already taking this into consideration. With economists saying second half 2011 will have anemic growth, and supply now being revised higher, bears are in control. We still suggest this market is a long-term buy (focused on the April 2012 contract and beyond) and will start step 1 of our long-term buy soon…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.
