Hogs: There was a surprising gain of $1.74 posted on the morning report of wholesale pork trading. That was a surprise considering how weak and, honestly, boring cash pork has been. Cash hogs were steady in most locations.
The jump in cash pork can be attributed to ideas on exports, domestic demand or future supplies. Our take is that future supplies represent the turning point. The drop in hog slaughter, as we transition from April into May, could be a little larger than you would expect.
We continue to suspect the March Hogs and Pigs report overestimated the hog slaughter that would be seen in the coming weeks. Our target remains a very conservative $93-$94 for the summer contracts. When we can confirm that this smaller supply is definitely unavoidable we will let you know…Rich Nelson
Cattle: You could argue the market got a little boost Wednesday from the release of Cattle on Feed estimates. As we noted in our previous commentary, this COF report confirms that supplies are still tight.
The March marketing estimate, of 93.9% is artificially small due to a 4.4% reduction (one less weekday in March 2013). The placement number of 99.1% is artificially large as it is compared against a low number from last year. The net result is that cattle in feedlots total 6% smaller than last year at the start of April. The number of market ready cattle, those on feed for over 120 days, is 12% smaller than last year.
This helped feedlots argue that early week cash cattle expectations of $125 were a bit too low. Instead, the trade is considering $126 or $127 as a more reasonable alternative. Being clear here, this does not change the big picture. The April futures settlement of $126.87, and a normal basis for this week of +$0.40, implies cash this week at $127.27 ($127). So, yes, the market’s early expectation this week of $125 cash was too low.
However, if we trade at $127, steady with last week, is it changing anything? Does that change that cash peaked two weeks ago at $128 and we are on the normal roll lower in prices into summer? The answer is no. Supplies are exciting to talk about as they are tight in the “right now” time frame. However, this market is not a supply market. This is a demand-driven problem. We still see $113 as a reasonable summer low for cash cattle…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.