By Rich Nelson
Hogs: Wholesale pork prices fell yet again Wednesday. There is now a full 11.36 between June’s high for wholesale pork prices and the most recent settlement. It is hard moving this pork right now in the face of heat across the United States.
On the other end of the pork market, cash hogs, there is still a battle waging in psychology. We really have not fallen much on the cash hog end from the June highs. There is one pork analyst calling for a hole in market-ready numbers during December. There is also talk now that some operations with PED are simply culling all young piglets in the farrowing building. This news certainly sounds incredibly bullish.
The big problem here, like many other scares, is getting hard numbers. The number of new PED cases is actually beginning to fall. However, you must consider that many farms with it have not reported it or could be attributing symptoms to other problems. In other words, just like the bogus stories we heard about China buying incredible amounts of U.S. pork, there is no way to confirm or deny this talk. Until we can quantify numbers, and therefore compute the potential price impact, the “story” will be believed. That has provided some good support to cash hogs in the face of this pork price decline.
Allendale has discussed our expectation for a slight bounce in the second half of the month. That would be normal for this year and not a PED issue. For now, we cannot find the short-term change in fundamentals (wholesale pork) that is needed to get this expectation turned into reality.
For speculative trading, the profit-protecting stop on the cattle/hog spread was filled Wednesday due to the drop in cattle prices. As you remember, as that spread continued to gain, the stop was moved up in a stair-step fashion. We will look to apply this again next month using different contracts of each pit…Rich Nelson
Cattle: The trade is getting a little concerned about this near-term cash cattle situation. Allendale’s 10-year index measurement of cash cattle prices shows this week is the typical bottom for cash. Of course, that is made up of various summer lows ranging from May through August.
However, it represents an important issue. We are now moving into a “later than normal” potential bottom for this year’s cash. This fits in with some concerns noted in our commentaries recently. So far wholesale beef is still falling. You can also make an argument that spring placement numbers put an extra head or two in the August time frame. Hot temperatures along the East Coast, the #1 beef demand center, are also issues to consider. For the short term, this market is still waiting for cash cattle. This does not concern us at all with Q4 or Q1. Summer markets are a completely different issue than winter.
For Friday’s COF report, we are all looking at placements. The average guess is for a 5.3% decline for June feedlot inflows. Allendale is the lowest estimate of the group with our 10.7% decline estimate. Keep in mind cash cattle was still falling and cash corn was rising from May to June in the Plains. These numbers certainly support the long-term picture (November through February). For the near term, it would appear the trade is looking at the June marketing estimates and getting concerned. The average guess is for a 5.5% decline vs. June of last year. Allendale is right there with our 4.7% lower estimate.
If you didn’t know how these numbers are made you would assume that represents a drastically poor pace to last month’s numbers, right? Keep in mind that analysts are making these numbers recognizing there was one less weekday on the calendar in June of this year than June of last year. That “lowers” this number by 4%. Now, consider that July of this year will have one more weekday. That will make the August COF report, which shows July marketings, will be skewed “higher” by 4%. Bottom line here is the short term cattle/beef market is still sloppy and Friday’s COF report will make it “appear” even worse due to the marketing number.
For the speculative trades, we have been moving the stops higher with the market’s rally in previous weeks. The first of these “profit protectors” was filled Wednesday. Our long-term projections of $134 to $136 on the February remain wholly intact. If the market wants to set back for a couple weeks here, that is no problem…Rich Nelson
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