Bullish scenario on hold for hogs, cattle

Delayed effect from supply disruptions

Hogs: The latest update of breeding herd liquidation that we have compiled shows there was a bubble of sow slaughter in the later September and early October time frame. This fits in well with producer responses on future farrowing plans noted on the September Hogs and Pigs report.

For the long-term supply picture, this verifies the supply declines coming that the industry has been noting. For now we still suggest these are still coming as the drop in corn prices recently is relatively minor. For our market direction, we are neutral to hog futures for now and will get bullish after the seasonal peak in production in two weeks…Rich Nelson
Cattle: A little more discussion on the long-term supply picture is warranted. Last night we noted that we expect Friday’s Cattle on Feed report to show a good decline in feedlot inventories from Oct. 1 to Nov. 1 (from -2.6% to now -4.9%). We see October as having the fourth month in a row of sharp declines in placements at 8.9% lower than last year. The average analyst guess is for an even more severe 12.6% decline vs. last year. October placements will hit between March and August. A severe supply squeeze in live cattle will be felt starting around the first of the year.

As feedlots are not buying new calves and feeders we have a short-term problem with demand for replacement animals. This is why cash feeders and futures have traded mixed. We look for feeders, both cash and feeders, to show significant strength after the first of the year. It will take a rally in live cattle first before feedlots change calf and feeder buying. While we hold great expectations for prices in 2013 we will again point out Friday’s report will confirm a continuing problem feedlots have with active marketings…Rich Nelson

About the Author

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.