Hogs, cattle turning on snow expectations for Midwest

Hog and cattle fundamentals

Cattle herd Cattle herd

Hogs: You cannot argue with a six- to 12-inch snow hitting the No. 1 hog state, Iowa. That is up from Tuesday's four-inch forecast. Cash hogs gained for another day as packers scrambled to get numbers lined up.

While new highs were made for the uptrend, we are still hesitant from jumping on board right now. Weather rallies that affect transportation, and not clear weight-gain problems such as those in cattle, typically do not last. On top of next week’s holiday slaughter declines, we are not too excited here.

With our expectation of clear breeding herd problems now adding on top of the general meat deficit for 2013, we remain long-term bullish. Our target is still $102/$103 for June futures. We consider that very conservative…Rich Nelson
  
Cattle: On Monday, the forecast for this week’s snows in Nebraska was four inches. Tuesday, that was increased to seven inches. Wednesday morning, it was revised higher again to now a six- to nine-inch range. This will cause problems for transportation and potentially also weight gains. We don’t have too much concern with the Kansas forecast. The issue here is not so much the storm, but that this comes when the market is finally realizing this live-cattle shortage is right around the corner.

The average trade guess for Friday’s Cattle on Feed report is for November placements to be 8.8% lower than last year. This now makes it six months in a row of lower placements! In the past four weeks, steer and heifer slaughter was equal to last year. Do you really think the beef industry is prepared to go into the tightest seasonal supply of the year and, on top of that, see slaughter tighten sharply vs. last year?

For the big picture, we remain staunch bulls. In fact, our minimum upside price targets of $134 for February and $138 for April were filled Wednesday. These numbers have been discussed on this report for many weeks. This is a full three months from our expectation! It is likely April will see $142 before this fledgling uptrend is complete.

For the short term, we had expected a slight dip in futures here as slaughter takes a dive from the holidays. The snows will be a problem for Nebraska but not for Kansas through Texas. We will still hold from adding to our longs until the end of the year…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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