Hog and cattle markets supported by fundamentals

Chinese crackdown won't slow down bulls

Hog Hog

Hogs: Overnight Chinese media released two separate stories reporting the crackdown of Chinese retailers selling tainted or diseased pork. That may have been the only bearish story out there today. Keep in mind that U.S. news is strictly one sided right now: bullish. The sharp drop-off in available hog numbers boosted wholesale pork prices by 2.59 on Monday and again by 91 cents Tuesday. On top of that, Monday’s pork export information was supportive.

While we respect the market’s short term hyper-attention to news stories regarding Chinese pork, realistically there will be no drop-off in Chinese pork demand and no analysts will be lowering U.S. pork export estimates based on this story. Hedgers should have some work done for summer marketings at the $93 price. For traders, we would not advise sales yet…Rich Nelson
Cattle: There has been quite a bit of talk recently about dry pasture conditions in the Plains. The thinking is that if backgrounders don’t want the feeders, then they all went into feedlots in May and again in June. That has many discussing the possibility of a big jump in placements when the USDA updates Cattle on Feed information next week. There have been record placement numbers in the past few months compared with the previous year.

There is one strong counter-argument to this big placement discussion: margins. In February, feedlots were only losing $8 per outgoing head and they brought in 3% more placements. By April they were losing $122 per head. Placements in that month were a huge 15% lower than last year. How aggressive do you think feedlots were in May when they were losing $194 per head?!

We fully recognize that if we did get big placements in May and June, due to drying pastures, then it could put a crimp on our bullish supply story for Q4. We just don’t think it will happen though. USDA agrees with us apparently with Tuesday's update on beef production. USDA looks for Q4 production to be 9% lower than last year! For the short-term, this market still has to decide if cash cattle can make one more attempt at putting in a summer low…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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