Hogs: We really don’t have a problem with a break in the cash hog market. It gained roughly $7 since the start of the year. Part of that was on weather hiccups. Seeing a setback for the next week or two is not unreasonable.
The lean hog index, the measure of cash hog prices, got up to $90 and futures are implying it will be around $87 by Feb. 14 (expiration of Feb futures). That’s not out of range of reason. April futures are implying another period of slight declines. That fits in with our seasonal study for this time of year. The lean hog index has fallen in 10 of the past 17 years between Feb. 14 to April 14.
We are not arguing with hold a neutral to slightly negative viewpoint here. The forecast shows precipitation coming on Sunday for the upper Midwest. It may bring snow to Minnesota, but Iowa may see that as rain depending on temperatures. We have noted this week our interest in summer futures. May through August futures are in the $95 and $96 range. From a price standpoint, that is looking a little cheap. From a timing standpoint, we cannot say this is a buy yet.
Cattle: The trade finally filled that open gap that was sticking out on the April and June charts. The market is now back to the level it was at before Japan announced they would expand its U.S. beef purchases.
If you are looking for a reason beyond this chart discussion of why futures fell $1 Wednesday, you will be hard pressed. Wholesale beef was up on Monday and Tuesday and slightly higher this morning (lower choice but higher select). There were no new deliveries posted Tuesday against the February contract. That implies the trade feels higher cash cattle prices, as implied by the February contract, are just fine.
We are now back to prices we consider a value, and our buy order was filled. We do hold the belief that this market will be dealing with some tight supply issues in the coming weeks. This should overcome any demand problems that are being seen right now. This market needs to see these supplies dry up before the trade is ready to trade it though.