Hogs: Considering Russia came out and said they may put in place some type of ban on U.S. and Canadian pork and beef Wednesday, this market did a great job holding its ground. The Russian health agency indicated unacceptable levels of lean growth hog feed additives, marketed as Paylean, would prompt them to take this action. Russia is our sixth largest pork buyer. In 2012 they accounted for around 5% of our exports.
Today’s action in cash hogs and cash pork (higher) was a pleasant surprise considering this move. Perhaps the trade is getting realistic about the mis-pricing in this market. February futures typically need a little premium to cash hog prices right now. Slaughter numbers typically drop a little going into February.
Let’s wait and see what exactly Russia does in the coming weeks before getting too excited. For pricing, we suggest a slight bounce in February and April futures is warranted. Selling options, both calls and puts, is our focus…Rich Nelson
Cattle: Like the hogs, cattle traded much better than you would expect. the Russian meat dispute is a slap in the face on top of the recent spate of negative beef news.
Cash cattle traded in Texas at $122. That was $3 lower than last week’s trade. It was $1 lower than the Kansas trade. Essentially, cattle traded $1 lower than where most of last week’s cattle move. That sounds pretty bearish. This marks the fourth week in a row of lower cash cattle prices.
For now, the average Joe looking at this market would say it is a clear sell based on this negative news. Russia is our sixth largest customer and bought 6% of our exports last year. Now let’s straighten out some facts here. Japan used to buy 1 billion lbs. of beef from us each year before our BSE problem in 2003. Last year’s purchase was 450,000 lbs. Russia last year accounted for a minor 144 million lbs. No matter what you plug in, any potential export announcement from Japan far outweighs the on again/off again problem with Russia…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.