Cattle, pork driven by seasonals, fundamentals more than China buy

Livestock Report

Hogs: We were surprised by the interest from clients Wednesday asking what type of price reaction would be seen from China’s largest pork processor, Shuanghui Intl., buying America’s largest hog producer and pork processor, Smithfield Foods.

This news raises all kinds of issues from plant operations, exports, and even some nationalistic/moral issues. From a short-term standpoint (the next six months), we do not see any measurable price impact.

Keep in mind that pork processors are simply middlemen between the base supply and the end user. They do not determine long-term pricing at all. However, they do have shorter picture pricing power as they can decide to increase or decrease hog buying.

Cattle: Futures, as well as wholesale beef, posted moderate gains Wednesday. It is likely this was in reaction to the Smithfield hog news. Theoretically, if you want to say U.S. pork exports will now increase to China that would mean less pork left in the United States to compete against beef.

If we actually quantified the amount of “extra” pork that could be sold, took that out of the U.S. meat market, then divided its actually price impact among chicken and beef, you would be hard pressed to find a perfect model suggesting U.S. cattle prices would increase by X cents per cwt. We do have our proprietary models of beef pricing, which do include the shifty competing meat relationship. Saying it clearly: China is moderately important to the U.S. pork market. They are NOT the U.S. pork market, though.

Realistically, a 5% or even 10% increase in pork exports to China will have such a small impact to beef prices that we don’t want to justify a full model run. It's a good story, but we will wait to see exactly how much of an increase will be seen before we start throwing out some crazy-sounding expectations.

For the overall beef picture, show lists continue to increase and we are approaching the seasonal glut of U.S. beef production. The peak week of production can hit anywhere from two to 12 weeks from now. This is not the time to start bullish talk for cattle…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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