Pork demand dives, while cattle gets bullish

Bottom could be deep in pork

Cattle, feedlot, beef Cattle, feedlot, beef

Hogs: Tuesday's release of cold storage estimates held some negative implications for pork demand. The way we see it, pork stocks jumped by 38 million lbs. from the end of February to the end of March. This puts end-of-March stocks to record levels. The message should not be of any surprise to the pork industry. March pork demand was a real disappointment.

The real problem as we see it is April demand. Typically, at this time we are rallying as weekly supplies dry up as we go into summer and retailers are scrambling to fill grilling demand orders. We have a problem here as wholesale pork prices continue to fall. This comes even though weekly pork production has already started its descent.

Two weeks ago we put out 444 million lbs. of pork. Last week it fell to 427 million lbs. We had a 4% cut in weekly kills and wholesale pork actually declined too? It is not just that consumers backed away from the U.S. meat plate between January and the end of March. The incredible problem we have is that they are not yet even stabilizing demand! Let this market break all it wants to. Eventually, after everyone finally gives up on trying to “pick a bottom” it will happen. Stand back until the market tells you it is ready…Rich Nelson

Cattle: There are now four days in a row of sharply higher wholesale beef prices. The trade has got to be excited about this. It would certainly indicate a sharp change in mindset among meat buyers. Looking at the actual volume of beef they purchased and we see only a mixed picture. They bought large amounts from Tuesday and Thursday of last week. Friday, Monday and Tuesday, the numbers were not much larger than other days in the same week.

This Wednesday's purchase of 240 loads is actually smaller than the previous four Wednesday’s. Buyers are picking up product at higher prices. They are simply not being as aggressive about it as the price action would appear.

Let’s keep this simple. Allendale believes this market has made a bottom that will last for three to four weeks. We have good news in the form of renewed discussion on Japanese imports, packers selling beef at higher prices, and bullish expectations for Friday’s Cattle on Feed report. Analysts expect March placements to fall 7.6% from last year’s level. That could be the tipping point in many months of lower placements. For this short-term market action, this market will not be a rocket ship…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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