Hogs: It was good to see that deferreds finally took at stand against lower prices. December hogs fell down to $93 before settling just under $95 today. The closely watched August contract did a very good job of coming off its morning lows. The recent break would appear to be very similar to the drop from May 21 to June 2. If so, we may be ready for a rebound to new highs. For a fundamental reason for that move we simply look to the expected decline in slaughter numbers in July and August. The trade still feels confident that this will be last big slaughter problem of the year. In other news a producer client’s prompting for us to dig into the iPED+ vaccine has found some mixed information. No one we have talked with has suggested this is a complete fix. The general consensus is that this is a solid first step. We will have more on that in the coming days.
In other news we must point out that the trade has done a fair job in being realistic about Smithfield’s Tar Heel plant problems. There has been no widespread concern about the loss of the world’s #1 hog plant. That is very reasonable given that slaughter capacity is not the issue in the current market. The changing hog supply, which we suggest will tighten in three weeks, is the issue. We still see August at $130 given PED problems.
Cattle: Nebraska traded cash cattle lower this morning. Sales of $234 per dressed cwt were reported compared with last week’s $236 to $238. At one point August live cattle (CME:LCQ14) futures were down $1.70 for the day before rebounding to a 70 cent lower settlement. There were quite a few buyers who thought this lower trade was a value. June futures settled with a price that would imply the end of the month live price will be $146 (vs. $148 in the South last week). You’re not going to find one perfect story justifying the move. In fact boxed beef was up a very strong 7.75 for choice and 7.92 for select so far for the week. Though boxed beef and cash cattle do not go together during the summer exactly, it is something to monitor.
The overriding theme we must keep in mind is that bull markets do not need a specific reason to top. We generally have to monitor when the shorts get out and then when the last of the bulls stops buying. Given this incredible run in the past four weeks it may be safe to say that both of those requirements were met. Also, don’t forget that this week’s showlist included a full 39,000 head over last week. Cattle feeders have been holding back numbers for six weeks and may be itching to sell “before their neighbor.”
The other issue that cannot be ignored was the limit trading in feeder cattle (CME:GFQ14). It was just yesterday that futures broke the unbelievable mark of $210. Have we reached the point where the backgrounders are finally done buying? We can certainly say that cattle feeders are not interested in them at this price. As it stands we give this recent move a 50/50 chance of being “the top”. While we remain bearish this market, due to our expectation that feedlots will have to eventually get back on track with marketings, we have been holding off from selling this market. Let’s give this one more day and see tomorrow’s action. Lastly, Friday’s COF report is expected to show a 4.4% decline in marketings vs. last year for the month of May. We are concerned that number could be larger.