Pork packer margins key, while cash cattle slips

Livestock Report

Hogs: It is pretty typical that cash hog prices generally move higher than wholesale pork during this time. This is a rally based on a normal shortfall in supply going into summer. That means the base production unit, cash hogs, is generally the leader here. In the past two weeks, cash hogs have gained 14% compared with cash hogs up only 6%.

There are some valid concerns over pork processing margins at this time. The sticky point is guessing exactly when packer margins do take over the short-term trade’s focus. One of the reasons, which we noted in previous weeks, of why this year’s cash hog rally would be strong was our skepticism of production expectations. Yes, slaughter numbers do drop all the way into July. The March Hogs & Pigs report indicated hog slaughter at this time should be running 2.3% over last year. This week’s pace so far is 1.8% under last year.

The bottom line here is that this market is still in the process of finding out just how tight supplies will be this summer. In the big picture, though, don’t expect this parade to go on forever. Summer futures are at $92. Thursday's lean hog index, the measure of cash hog prices as of Tuesday, will be $90. Turn your bias from straight-out bullish to now looking to take profits on longs. On rallies, look to work on hedge sales at $93…Rich Nelson
Cattle: There is still a 6% increase in weekly slaughters until the mid-June peak. Prices, since demand continues to slip as summer heat picks up, generally post a low in July. The period of buying for the good steak featured for Memorial Day is also slipping away. This is why cash cattle turned tail and traded at $126 in the South both Tuesday and Wednesday.

Wholesale beef Wednesday morning posted a $3 gain for choice grading product. While that did push choice beef to a new high, not for select, you will notice futures did not respond. It is likely any orders received right now are last-minute purchases. We cannot say this demand will be waiting for us next week. Our cash cattle target remains $113 for summer lows…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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