Hogs: Considering the bearish cold storage report from Tuesday, Wednesday’s CME Group futures didn’t do too bad. The dominant contract, July, saw losses of 1.90 but ended only 0.65 cents lower. August futures were down 1.80 at one point but closed 0.90 lower.
While the price reaction was not as bad as we feared, we are still left with a feeling of unease about what the cold storage report told us. Demand in April was a problem. We have to guess at where the problem came from, though. Trade data, imports and exports, for April will not be released for three more weeks. Until that is seen, we have to wonder whether it was the U.S. consumer (most likely) or the pork export market that was the issue.
This cold storage report comes on top of the recent jump in hog marketings that was not forecast by the March Hogs & Pigs report. We do look for summer futures to hit $90 later on, likely into late July or early August, but for the short term we have some rough news to work through…Rich Nelson
Cattle: May marks the first month where the flush of those fall calf placements begin to be marketed. Last year the peak kill week, for combined steer and heifers, was June 25. In 2010 the peak week was this week (May 22 back then). In 2009, it was again this week (May 23 back then). Considering that weights grow in June, July and August, though, the peak week of beef production can be delayed until June through August. The message here is that this is still a little early to suggest the bottom for the year has been made.
In addition, we have Tuesday’s Cold Storage report which reminded us demand is weak. With that in mind we are still suggesting cash cattle could break in the coming weeks down to $116. There was solid trade today at $2 lower in the Southern Plains at $121. A $116 cash cattle trade in summer gives a futures objective of $117.
With so much confusion about demand right now, Allendale advises cattle feeding clients to lift hedges off correctly this summer. When you sell the cattle, call us and take off the appropriate hedges. Those following our advice have hedges on all cattle to be marketed this summer locked in on the June contract at 127.37. We still very much like being bullish the winter period and have a pretty conservative strategy on for speculative positions. We are still suggesting $130 for October and December futures for a target near their expiration…Rich Nelson