Pork could feel bird flu effect, and is cattle topping?

Livestock Report

Hogs: The general talk over bird flu in China is something we have to watch closely. Those new to grain/livestock trading in recent years may need a little education on the severity of the 2005/06 bird flu problem. Widespread problems in Asia, Eastern Europe, the Middle East, and even in Mexico and the U.S. were seen. Massive bird deaths (in the millions), and even some transmissions to pigs and humans occurred.

Though this did initially help out pork, as Asian consumers turned away from chicken, it eventually came back to bite us. As world demand for chicken fell, and U.S. chicken exports were pressured, we had a glut of chicken left here in the U.S. This pressured us on the pork end.

Our message here is this: Anytime consumers are fearful about meat safety, even if it is not pork-related, it is not always a clear winner what the effect will be. For now, the few cases in China are not a real concern. We will monitor this issue closely, though.

For the short term, the plan is clear. Cash hogs have posted their seasonal low, April futures have a little premium plugged in for the April 12 expiration (correctly so), and some enthusiasm is back in this market. We still expect further price increases but will need to see wholesale pork join in the party before the next leg up begins...Rich Nelson
Cattle: Active cash trade occurred at $128 and $128.50 in the South on Wednesday (Nebraska and Colorado sold for $129). This is equal with the majority of last week’s action. This makes it five weeks total this year that cash has hit $128. None has traded over that amount (using the weekly average price for the Southern Plains).

Wednesday morning we were asked about potential deliveries against the April contract. In the big picture, this news is not too surprising. We are still in the period of time where supplies are relatively tight and you can still make an argument for warming weather hopes. We likely have another week left of being in this good period. Our upside objective of $128 on the April was filled on Thursday. We are now neutral and waiting for the market to tell us of its top.

Normal basis levels for the next three weeks are +$0.67, $+$0.40, and -$.04. That means Wednesday’s April futures are pricing in cash cattle at $128.64 next week, $128.37 the next, and $127.93 by the end of the month. Perhaps a few contracts could be tendered next week but we do not see any reason to suggest April futures are overpriced enough to justify deliveries. We will point out our skepticism for cash to still be at $128 at the end of the month (as futures currently imply).

Subscribers have asked us about our current trade recommendation. We know futures will fall at some point in the coming two to three weeks and start the normal decline into summer. We don’t know exactly when that will happen. Only when prices start that fall will our sell stop order be filled…Rich Nelson

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