Hogs: On top of the rains and snows that the upper Midwest saw in the past 16 hours, we have a sharp cool down in temperatures to deal with. Storm Lake, Iowa, is forecast for a low of minus 2 up ahead. This could keep cash hogs prices firm for the next day or so.
There are three things we must bring up that are not positive, though. 1) Any delayed marketings this week will be visiting the packing plant eventually. Next week we will have a larger kill. 2) Those hogs will be marketed, now at higher weights. 3) Russia announced a ban on U.S. pork and beef as of Feb 11. Last year they bought 273 million lbs. of U.S. pork, which came to 5% of the annual total. While some of that will be offset by lower competition from the EU, the trade is wary right now.
We can even point to the seasonal chart. Last year right about this time, cash hogs peaked for about 30 days. They pushed even lower in March and April but that was due to spring 2012 anomalies (U.S. pork exports and “pink slime”).
We will now shift our short-term viewpoint to one of undervalued February and April to now of correctly priced futures. Summer contracts are still seen with $102 peaks ($105 cash hog peak). Selling options, both calls and puts, is our focus…Rich Nelson
Cattle: Cash cattle traded in Texas at $125 Wednesday. That was $3 over last week’s Texas trade and $1 over last week’s ending Nebraska trades. Because this price was generally expected, it held little market impact.
Midway through the morning, Russia confirmed it would stop buying U.S. beef and pork as of Feb. 11. The country did not receive any guarantees that U.S. meat would be free of ractopamine, and the Russian health agency reacted. Last year Russia bought 144,000 lbs. of U.S. beef. That accounted for 6% of our exports. Until we get confirmation of how large Japan will increase, the trade will keep a cautious tone. Japan last year bought 459,000 lbs. of U.S. beef. A 32% increase in beef orders to Japan would offset the hole left by Russia.
In the big picture would we could see this market pushing for an attempt to get into the gap on the chart. On the April fats that is from 131.35 to 132.05. That is why we have our buy order so low…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.