Hog futures rally and cash lags, while cattle demand wanes

Livestock report

Cattle herd Cattle herd

Hogs: At this point, we are still in the dark about Wenesday’s strong rally in futures. December finished up $2.42. Some will try to suggest Wall Street money leaving the stock market wanted some place to go. If that is the case, why weren’t the other commodities rallying hard today?

Keep in mind the stock market and commodities are positively correlated right now. That means if stock market traders have confidence and are buying, then commodities are going up. The lower stock market would therefore be bearish to commodities (see crude oil).

For the hog rally, let’s also keep in mind no change in the fundamental picture was noted. Wholesale pork was up a moderate 67 cents while cash hog prices actually fell by 63 cents. Either way, let’s not get caught up in the minor details. The message we all need to understand is hog futures rallied hard and actually closed near those highs. That sends a clear message.

It also validates our move to exit our bearish position on Tuesday. We noted that this market was not weakening at the pace we thought it should and therefore changed our mind. We are neutral to this market, will trade it from both sides for a few weeks, then likely turn straight bullish in the month of December (using summer 2013 futures)…Rich Nelson
 
Cattle: The stock market and cattle prices occasionally correlate well and sometimes not much. At current, given the concern for the economy, as there is no change in the presidential or congressional deadlock, we have to assume no real improvement in beef demand for six months at least.

Also, given the storm hitting the Northeast in the second half of the week, it is hard to be bullish right now. That futures did not hold Wednesday’s low prices by the close is actually pretty amazing. It is not time to buy this market yet. Bears are still in control…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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