Hogs: Allendale estimates Friday’s Hogs and Pigs report will show light expansion continuing. That idea should be thrown out the window, though. USDA’s survey of hog prices, completed as of June 1, was taken when producers were still looking for a large corn crop on the way.
We estimate the breeding herd likely grew from the March reports 0.6% increase over last year to a 1.0% increase. That is expansion. However, since the start of the month the idea of lower feed costs is an old one now. Based on our feed cost models, break-evens on finished hogs in the future are now up to $87 per lean cwt. Based on the current lean hog futures prices, that implies losses straight from September out through April of next year. That is eight months in a row of implied losses!
For the short-term futures pricing, there was a good rally today in many contracts. Some argue that the discount in summer futures was an issue. Others could say these higher feed costs may cause shorter feeding periods and therefore lighter finishing weights.
Last, it can be noted the lean hog index is now at 103.08. The July and August contracts are now at 96 and 92. That discount may leave some uneasy. We respect this small rebound but still feel the top is in and lower is the general direction…Rich Nelson
Cattle: A newswire article highlighted a story about of Texas pointing out that 15 head of cattle had died due to prussic poisoning. A combination of drought conditions, and heavily fertilized Tifton 85 Bermuda grass seeded in the area was the problem. Normally we don’t mention minor articles such as this, but we heard it in two separate conversations.
Will there be a nationwide die off in the US cattle herd from this? The answer is no. Will there be any market impact from 15, 100, or 500 head dying from this? The answer again is no.
Given a slow news day, and speculation over high corn costs reducing finishing weights, the trade didn’t mind biting into a story like this. Keep in mind we are all waiting on cash cattle sales to start for the week. This should be one of the lowest cash cattle prices of the year…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