Lean Hog (CME:HEN14)
Fundamental Support: Wholesale pork was up $2 on Friday but cash hogs were down. Today cash pork gained another $2. This time it was accompanied by moderately higher cash hogs. The trade is trying, yet again, to argue that we are finally at the turning point in this cash market. Theoretically we should be there as June represents a sharp change in slaughter levels. Realistically it may be hard to get futures too excited right now though. July and August already have a premium plugged in.
Also, we have not really hit the real PED numbers in the slaughter mix. When it does return, now thought to be in July or August, the trade is getting skeptical over how much support could be seen. This leaves us with the same price outlook as before. With no real PED issues you are looking at $105. If PED does return later this summer in a bigger way then $130 is the price.
Live Cattle (CME:LEM14)
Fundamental Support: The trend of feedlots holding back numbers is continuing into June as well. We would expect this trend to continue through the entire month. Showlists for the week, in the afternoon discussions, actually fell by 31,000 head in the major states. Of that total, Nebraska was responsible for 27,000. This net decline is a bullish turnaround from early morning discussions. Supporting today’s futures action was word that South Korea would likely allow beef imports containing zilpaterol after mid-July. This is the additive used in the Zilmax product that was pulled off the shelves by Merck. South Korea has purchased about 12% of our beef exports this year.
For this week, we would not expect cash cattle to trade higher. It certainly reduces that chance for $2 lower. As it stands we would guess steady to $1 lower will take this week’s numbers. Though smaller showlists would be a bullish issue this comes at a time when wholesale beef has trended lower now for three days in a row. Additionally there is a little more talk in the industry about this delayed marketing issue. It is a bit too hard to ignore when the past three weeks of kills have run 8% to 10% lower than last year. The bottom line here is the number of finished cattle hitting the plants in June will be smaller than it should. We will have to pay the piper in later July or early August but for now, cash won’t fall as much as it should. We will stand aside for speculative trading for the short term.