Hogs confirm bullish trend, while cattle rallies

Livestock Report

The rise in cash hog prices going into summer is a supply problem, rather than a demand issue. The rise in cash hog prices going into summer is a supply problem, rather than a demand issue.

Hogs: The trade continued the general march higher Wednesday. Cash hogs were bid up $1 in most locations, some even $2 higher. Cash pork, which was hit hard Tuesday, rebounded also.

We have to assume Tuesday’s lower pork price was a minor deviation in an otherwise clear uptrend. We were a little concerned going into Wednesday that some traders may want to break the futures end of things in the short term. Today’s active snow system, covering Nebraska, Western Iowa and Western Minnesota, could cause problems with deliveries. As we have said before, snows are bearish to hog prices.

It was good to see our fears were not realized. Instead, summer futures closed at their highest level since Feb. 15. Wednesday’s close broke the recent highs posted last month. There is no argument about it; cash hogs, lean hog futures and cash pork are all on board this rally right now. You could argue that perhaps cash hogs are moving a little more than cash pork, and processing margins are pinched, but that is a minor issue here.

Keep in mind the rise in prices going into summer is a cash hog supply problem, not as much of a demand for pork issue as you might assume. This rally should be cash hog focused. Something you need to be very conscious of is that June futures are now right at Allendale’s upside target range ($93 – $94). Your period of being straight-out bullish on this market only has another two weeks or so left…Rich Nelson
 
Cattle: It is amazing to think that wholesale beef has rallied almost $6 in just the past three days. Perhaps some of that gain was made from the unusual snows hitting Nebraska. The remainder was of course from the surge in warm weather in the past few days.

Given these big gains, you would have expected cash cattle to follow suite. However, active trading was seen in the South today at $128, even with last week. This will be a clear disappointment for much of the trade. While we are not calling an official end to this recent bounce yet, we must point out the days of having strong cash cattle prices last through May are pretty hard to find. Supplies increase between spring and summer and prices usually fall from their February to April peak down into July.

We are not watching the short-term movements here very closely. Our focus remains on the summer contracts. During that time we will have more cattle available for slaughter and will also be right at previous year levels…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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