Lean Hog (CME:HEN14) Fundamental Support: Today’s 387,000 head run was a bit below the range from private analysts of 391,000 – 402,000 head. With only one plant officially down for the day we must guess this week will mark week number two of lower than expected kills. We must assume this represents a confirmation of the much tighter supplies that private analysts have been discussing. As we have noted before we see the second week of July through September as being a serious problem. Today’s run was 5% less than last year. If we run another weak Saturday kill, we could end the week with a total 7% – 9% less than last year. Uh oh, that now makes it two weeks in a row where USDA’s 4% lower than last year slaughter estimate for this time is a little off.
We have to assume our $140 target for August remains viable. In other news chicken producer, Foster Farms, announced a recall of chicken products produced in March due to salmonella concerns. That should not affect the pork trade pricing.
Live Cattle (CME:LEQ14) Fundamental Support: We led the cattle section of the weekly meeting with the brokers by asking what could stop this rally. The first issue covered was consumer demand. Retail beef prices were 12% higher than last year in May. Pork prices are up 15% and chicken is at the same price as last year. Economics can be split into two divisions right now on the issue of consumer financial health. Theoretically these price rallies in the red meats “should” be encouraging consumer push back. We have not been able to identify any at this time.
The other issue discussed was the simple supply of live cattle problem. The month of June ended with fewer cattle visiting the packing plant than expected. While the month of July should have more numbers finishing out no one wants to suggest it will happen, especially after the problem identifying June’s numbers. Today’s offering of market ready cattle, the showlist, showed a surprising 35,000 head increase over last week (NE +24,000, CO +3,000, KS +4,000, TX +4,000). That could confirm this idea of more numbers hitting the market. On the other hand it must be pointed out there was a week or two in June where more numbers were offered but that did not stop the rally. In that instance not all of the Monday offerings were sold.
While we firmly believe that current pricing is complete unsustainable we must, yet again, point out that the market is not ready to trade this potentially bearish news. While we have been off on price direction this summer, we are happy to note that no short positions were suggested in June or even so far in July. The market can remain “wrong” for far longer than we have money waiting for it to be “right”.