Surprise cattle dip?

July 7, 2015 10:06 AM


Live Cattle Fundamental Support

The trade had heard some early rumors last week about a weaker demand environment up ahead but was certainly a bit surprised by Monday's 2.47 drop for choice and 4.13 decline for select. It is normal for a little dip in demand to be seen in July. We are now over the last holiday of the summer.

In addition the simple warmup in temperatures with also keep a grill or two quiet around the neighborhood. To be fair we will point out that no one is yet seeing any +95 degree temperatures. There is some heat in the extended forecast for the Central and Southern East Coast but not in the main demand areas (Northeast or East Coast).

This week’s offering to packers, showlists, were counted at 5,000 head over last week. A few extra cattle and lower beef demand may put some pressure on cash cattle this week. August futures, and a normal basis for each week in the summer, are pricing in a summer range from $149 – $151.

From last week’s seasonal discussion we can note that live cattle are not following the normal plan for this time of year. Feeders are moderately following theirs. If the seasonal holds then this break lower in the past couple of weeks would be a great buying opportunity for feeders.

We have no problem with futures suggesting a sideways range for the next two weeks but still suggest the far deferreds are underpriced.


Lean Hog Fundamental Support

We saw some support come in last week for cash hogs but not yet pork. Hopefully today’s 1.87 jump for hogs and 1.27 for pork will change some minds here. In the big picture we cannot expect any major rally, just a minor rebound.

While pork demand is a concern in July, like with beef, here we do have tight supplies. The tightest kill of the year, non-holiday, occurs from later June into early July.

Another positive for hog prices, and negative for margins, was the push to new highs for the year for corn last week. That could reduce finishing weights for the summer and encourage further declines in farrowings.

About the Author

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.