Hog supplies burned by summer heat, while cattle bullish long term

Livestock report

Hogs: We wonder if this discrepancy between bearish short-term pork fundamentals and the long-term picture is getting resolved right now.

The near-term picture remains a problem. Wednesday represents the fifth day in a row of lower cash hog prices. Packers will run a smaller kill this Saturday, only 175,000 head, and will also have holiday slaughter declines at the end of the week. In addition, they are fighting to improve their processing margin from last week. We still suggest the negative trend now developing in cash hogs, which is normal for this time of year, will continue.

One piece of moderately good news, which will not stop this short term lower trend in cash markets, was Wednesday’s pork export release. In September exports were 2% below last year. Today’s release showed October exports were 2% higher than last year. That may have partially supported futures. Not only was there light breeding herd liquidation in recent months but perhaps the trade needs to focus on breeding herd problems due to the July/August heat…Rich Nelson
Cattle: Wednesday's monthly update on beef exports held some good news. From May through September, beef exports were running 12% to 17% lower than last year. The new numbers, for October, were much better at only 3% lower than last year. The trade likely has some hopes that other countries, besides Japan, will soon ban Brazil’s product due to its BSE protein finding. Brazil did not have a case of BSE. They found that a low-priority sample of beef from an animal killed in 2010 had the proteins that could develop into BSE. Brazilian experts suggest this is likely a genetic anomaly.

For shorter-term news, the trade is waiting for cash cattle trade with baited breath. Bids of $121 are far from asking prices of $126. Keep in mind we likely have some bad news still in this market for the next two weeks. Packers are losing roughly $50 per head. There will also be significant cutbacks in kills at the end of the month. Typically we have two weeks of weakness left here. For the long-term picture we remain big bulls in this market…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.