Hogs: Where will cash hogs be on Oct. 14? With the renewed bullishness that is in this market right now, some will ask whether cash hogs can even fall now. On a historic basis, from Sept. 24 to Oct. 14, prices have fallen in 12 of the past 15 years. Of those down years, the average decline is 6.4%. That would project October at 91.45. There are four big down years in that group, which would project prices even lower. As it stands right now, we will hold from trading until Friday’s report. We don’t know what USDA will do, and will not put money on that uncertainty.
Cattle: New highs were posted yet again for the back months today. The trade has really bit into the idea that a shortfall in beef production is right around the corner.
There's another issue to consider for Q1 and Q2 beef supplies. If Friday’s Hogs & Pigs report does show that PED has limited expansion in the pork industry, it could mean a little more room for upside prices in beef. Heck, when you are set to see a few weeks of 8% year over year declines in cattle slaughter, as will be seen in Q1, any less amount of competing meats will exaggerate the rally just a little more.
Keep in mind our bullish bias is strictly beef-supply based. We could theoretically add to our price expectation if pork production is only equal with last year in Q1 (rather than the planned +2% to +3%). Getting back to short-term issues, it appears this week’s cash cattle trading will run steady at a minimum but more likely at $125. That would be up $1 from last week. As a whole we have been bullish in cattle since the summer low, and it has paid off. We cannot stop looking for things that stop our planned rally though.
The main “black swan” issue here is beef demand. Specifically, the impact from government budget debates, the debt ceiling, or Fed changes to monetary policy. You may remember we were bulled up in the fall of last year based on supplies and the Jan. 1 tax increase and sequester spending cuts limited the size of the cattle rally. That is a possibility this year. For now, we stay straight ahead bullish. However, we will actively move up our stops to protect profits. If this works out, we will add even more so to our bullish trading position. This will be done right though with proper risk management.