Hogs, cattle face uncertainty from weather and China

Livestock Report

Hogs Hogs

Hogs: With a week and a half of weather-related slaughter issues, we have some problems with market-ready numbers. Over the next two weeks, we will have to run an extra hog or two through the line. This will keep cash hogs, and therefore futures, on weak footing.

Additionally, keep in mind China has given us what could be called an ultimatum. Without a ractopamine-free verification in place by Friday, they have threatened to stop buying U.S. pork. This is a problem as U.S. negotiators have not received clear clarification about what type of verification they would need.

Additionally, U.S. officials may not want to do this verification program for just one or two countries. Certainly, before the sequester problem on Friday, they won't have time to fully tackle this issue. For now, stay neutral to bearish. It is likely a deal will be made and some of this lost pricing will be given back in the coming weeks ...Rich Nelson

Cattle: Feedlots are getting a better grasp on the effects of the early week blizzard. The news is not good. We noted last night that this blizzard not only will cause weight gains to suffer but could actually cause a clear net loss for the week. We are hearing of more instances of the latter showing up. This market now has the job of revising weight expectations and therefore revising its pricing.

For economy news we still have Thursday’s GDP report to get through. Friday marks the sequester cuts. Our current bias is that no government official in their right mind would authorize a general 15-day furlough for the one-third of meat inspection employees that will be affected.

With that in mind, let’s look at the next real issue in the cattle market: market-ready supplies. As we get into March, we will start seeing numbers dry up. That comes from those low July-October placement levels. We are going to with a more conservative way to be slightly long this market. We will have a base position of long futures but also sell a 132 April call…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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