Hog prices steady, while cattle could be volatile short term

Livestock report

Hogs: Let’s do a little review here. Lean hog futures are a cash-settled contract. They are settled against a measure of nationwide cash hog prices called the lean hog index. The latest quote for this index is 82.47 and represents cash hog trading through the 3rd. Since cash hogs were higher Tuesday and Wednesday, it is likely we can estimate it at around 85.00 right now. As you can tell by Wednesday’s 85.00 December contract settlement, the market thinks cash hogs will stay here until Dec. 14.

Keep in mind we have to guess how high cash hogs will go in the coming days then how low they will fall as the seasonal pressure goes into next week. Though cash hogs are still moving higher “right now,” we look for the tide to change anytime. Packing margins have been squeezed a bit too tight…Rich Nelson
Cattle: Light cash cattle sales were seen in Nebraska at $122 on Wednesday. That was a bit upsetting at first glance. The trade later calmed down when it was said these were very heavy weight cattle that were being discounted.

For the short term, we still expect pressure over the next couple of weeks. Terrible packer margins, concerns about fiscal cliff negotiations, and other factors are concerns. Also, an extra 40,000 head in this week’s show list does not give feedlots bargaining room.

Our thought right now is that these “heavy weight” cattle numbers might not be that rare of an occurrence. Our thought is that sometime this month we will see the main trading areas see $122 for most cattle. December futures are pricing in $125 at the end of the month. For the short term, expect to hear a small waterfall of negative news. For the big picture, January and beyond, we look for all of this to get brushed aside by some serious shortfalls in available feedlot numbers…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.