Sense of optimism in hog market

Allendale livestock wrap-up for April 23

Hogs (CME:LHM14)

Better watch out, there is a sense of optimism in this market now. Though futures started out like a dead fish, someone finally told the trade about yesterday’s Cold Storage report. The summer contracts closed limit up or within a few ticks of it. As we noted yesterday afternoon, that report showed the third largest monthly drawdown in the history of these reports. There is little cushion for supply in this market if the trade is right about a coming summer supply squeeze. It seems this report finally woke up the remainder of the trade about the potential second bull move here.

In other positive we must note these weekly PED finding reports are not really bearish. Though the peak week was in February at 315 “findings”, the most recent report was still very large at 267. What will this evening’s update show. As it stands we are still supportive this market with a conservative estimate of $130 for summer futures.

Cattle (CME:LEM14)

June futures closed at their highest price in four days. Traders are wondering if the recent wholesale beef rally will translate into cash cattle sales. That would also imply that perhaps these deferred contracts don’t need their steep discounts. On the bullish end we have end users procuring for warm weather buying. Having said that we have this incoming cold front that will limit temperatures to the 50′s after Friday for the next two weeks. That could cool perceptions on demand.

For now though, traders are noting the $10 rally in choice and $9 in select. The question here is whether this big rally simply brings packers back to breakeven or whether some of this juice will make it way to the feedlot. While we have been talking down this market in recent weeks it must be noted this jump in supply we expect really won’t be felt until mid-May.

Friday’s Cattle on Feed report, showing a 0.8% increase in March placements according to analysts, will remind the trade that low supplies over the past three months are now over. The last time there was a year over year increase in the On Feed population was August of 2012. For big picture issues, whether this week’s cash trades steady, higher, or lower will not make any change to our forecast. We are already in the process of moving lower into late summer. After those summer lows are in, we will happily become raging bulls for the December 2014 – April 2015 contracts.

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.

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