Hogs: From a big picture point of view, it is interesting to see how quickly this market has gone from a mindset of “no supplies anywhere” to one where packer buyers have more than adequate supplies. The numbers are coming in, though certainly not to the September Hogs & Pigs number, and weights are an issue as well.
It has been quite awhile since we could say weights were adding 2% to the pork production mix. There is still a deficit in hog numbers but recent weights are helping to close the gap. We still contend that this week and next will be perceived as big kill weeks. Along with that the trade may keep a bearish viewpoint for the next week or so.
After the next two weeks, though, the market is bracing for uncertainty. The increase in recent PED numbers reminds the trade that December and beyond slaughter is a question.
Cattle: In two days, the USDA will release the latest update for retail prices in the month of October. We are eager to see how beef will fit in compared with pork and chicken as we head into winter.
There has been some retailer push back against wholesale beef now that wholesale beef prices are just over $200 on a composite basis. That is a record high for wholesale prices. Back in August, the latest data available, retail beef was priced $2.97 per lb. over chicken. That was up from the October 2012 premium of $2.89. Believe it or not, but during August retail beef was only $1.21 more expensive than pork. That was down from the October 2012 premium of $1.27. Given that cash cattle and wholesale beef prices have rallied since this past summer you would assume this “beef premium” may be a little large.
For the short term, bears can argue we are getting overpriced. On the other hand, bulls can point out the beef premium is going to get ridiculous in a few months. We may see futures flounder in the very short term. That opens a good discussion about spreads.
There is trade talk that October placements will actually show some big numbers. That will be reported next Friday. As October placements help supply slaughter levels from March to August, you can argue our favored spread, buy February and sell June, may benefit. We feel cattle is the trade for agriculture right now and will use the November slump in prices to restart a good long-term bull position.