Hogs: The market feels it has Monday’s holiday about dialed in. In 2011 packers ran a kill of 360,000 head. Last year’s run totaled 376,000. We would expect something similar to that on Monday. Regular kills are running 430,000 head per weekday right now. Though there is a drop in packer needs for early next week, keep in mind producers are not rushing to market at that time either.
Monday’s temps are seen at a high of 9 and a low of 1 degrees in Iowa. While this is a short-term issue it is interesting to see the market’s viewpoint on prices one month from now.
February futures are running just over 85.00. That is slightly above the current cash hog price, lean hog index, which is just under 85.00. The market is saying there will be no rally in cash hog prices between now and Feb. 14. Looking back through our database, we see that cash hogs have gained between Jan. 15 and Feb. 14 in eight of the past 10 years. The average of all 10 years was a 4.81 gain. The average of the eight positive years was a 6.46 gain. Our bias still holds that this hog market is undervalued. Our only question is when futures will be ready to come to that conclusion as well…Rich Nelson
Cattle: In the past few days, we have spent some time discussing the simple sense of malaise that the cattle market is giving off.
Packers are trying to get a hold of this margin situation. USDA’s report on Friday moved much of this year’s production shortfall out of the first half of the year to now the back half. There is a lot of talk about negative demand right now. Newswires are discussing it and now some cash sources are bringing it up.
What is interesting though is this demand discussion has not shown up in the numbers yet. Since the end of 2012 choice boxed beef is down 69 cents while select is up 3.87. That is a clear net increase. During that time, cash cattle has now fallen $2 from the end of 2012 $127. So wholesale beef is up but cash cattle is down. That sounds like a cash cattle issue rather than a beef demand issue.
One thing we are checking on is whether feedlots are holding a few extra cattle. In December, higher weights were cushioning the blow of falling cattle numbers by around 2%. Some suggest feedlots held back on marketing in the past three weeks and now either have some extra numbers to market or that the weights are increasing.
The problem from a number cruncher standpoint is that available data to confirm or deny this discussion is too delayed. Keeping it simple, Wednesday's $125 cash cattle trade does fit into the size of decline we could argue for a moderate January correction. The big decline in futures is the surprise. At today’s futures prices the market is saying cash cattle will recover to $128 by the end of February and will peak at $134 in the first week of April. Based on our supply estimates, that is just too low. For now, respect what this one-sided market wants to do. We will discuss the long side for trading in a week or two….Rich Nelson