HYPERLINK "http://www.allendale-inc.com/products/products.aspx" Allendale Livestock Wrap-Up for DATE \@ "M/d/yyyy" 7/22/2009
Hogs: Traders spent another day taking off some more of the premium August futures have to cash hog prices. We project tomorrow’s lean hog index will be $59.55. Traders can note the bad news on the Cold Storage report (see below) could hold this recent cash pork led rally back now. We still suggest $64 is a good target for where August futures expire. If we are wrong it should not be by much. The real issue everyone should be watching right now is the deferreds. Why are October and December “only” holding a $5 discount to August. The avalanche of hogs which hit as we go into fall/winter has a good chance of pushing December to $50 on a conservative basis. We hope to have most of our big sell type positions for those deferreds on by mid August.
Cattle: Though Japan found a spinal column in a recent shipment of U.S. beef, it is good news to hear they will not hold it over our head. In the short term it is still not good news and today’s CME break was made on that news. Also, a few cattle traded in Kansas at steady $84. In other news average estimates for Friday’s Cattle on Feed and Cattle (bi-annual inventory) reports are out. The average guess on placements is to see them 7.1% lower than last year’s June. That is good news but keep in mind it only helps fourth quarter 2009 and first quarter 2010 supplies, not right now. Also, before we get too bulled up here, keep in mind we have current low prices due to demand, it is not a big supply issue. For direction, we are trying not to play with these summer futures. They are higher than we projected and also being run by the “outside money” buying. We would rather stay with a supportive viewpoint on deferreds.
Rich Nelson is the Director of Research at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com