Long-term hog production bearish, cattle bullish

Hogs: Breeding herd numbers are just a little larger than last year and production will be moderately higher next year. We have clearly changed from the loss to the profit portion of the well-known Hog Cycle. 2011 marks two years in a row of profits. The green area in the 2012 section of the chart shows projected profits given today’s hog and grain futures. Producers are eying profits in every month! Even better, we are assuming hog prices will rise and that grain prices will continue to stair-step lower next year. The question is not IF producers will expand, it is WHEN? For future planning, keep in mind there is a 10 month lag from the beginning of expansion to actual higher output…Rich Nelson

Cattle: This summer’s heatwave was the final straw for cow/calf producers in the Southern Plains. They liquidated cow herds and shipped the young calves to the feedlot. Beef cow slaughter during this period was over 20% higher than last year. After this summer heat, cow slaughter continued to run high all the way into the normal seasonal cow culling period (after fall weaning). Big liquidation of the cow herd will insure very low calf supplies for years to come. The recent action, what peaks our interest, is the fact November slaughter is now running only 3% over last year. We are entering the final phases of this liquidation cycle. For fat cattle trading in 2012, this should also coincide with a lower level of placements in the coming months...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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