Hogs tease seasonal bottom, while Japan eyes U.S. beef

Asian country could back away from strict import standards

Hogs: If the cattle market is feeling better about things, due to speculation about Japanese import changes, perhaps it will be enough to get a hog market bottom. For the past three weeks we have discussed the idea of a seasonal bottom in the first half of April. The market did not follow this reliable pattern last year but may be ready to do it this time. We started our second attempt at getting on board this seasonal bottom situation by selling a put today. We may be more aggressive in the coming days…Rich Nelson

Cattle: Back in October, Japanese health authorities began discussing the idea of changing their U.S. beef import requirements. You may remember after our 2003 finding of BSE they banned U.S. product outright then moved to a restrictive policy of beef from cattle aged 20 months and under. Last fall there were discussions that they may change that to the more standard under-30 months rule.

The under-30 month standard would not require detailed paperwork with the shipments, only a mouth-check at the packing plant. Being Japan, the process takes time. That policy change discussion has apparently been upped to the Food Safety Committee. After that committee finishes a review and submits a recommendation, it must be acted on by the politicians. We go through this whole discussion to keep your hopes low. This is a long drawn-out process from people obsessed with food safety to levels we don’t understand.

The good news is if it does pass, there will be a meaningful and immediate price response. Japan used to be our No. 1 beef buyer. Allendale estimates 2012 exports to Japan at 485,000 lbs., almost half of our pre-BSE 1.0 billion lb. level. If they do change their requirements, annual exports could increase to 800,000 lbs. U.S. cattle prices would rise by $4 to $6 on an announcement. Though everyone in the industry is bearish right now, and will be bearish through the summer, let’s keep in mind we have a very tight supply situation hitting in the fourth quarter. Can you imagine the price rally if we have Japan buying full speed in that time?…Rich Nelson

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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