Published: August 03, 2007 02:07 am         

Livestock Angles: Optimism in the cattle market

Originally published in the July 27, 2007, print edition.

The cattle market has been uneven during the past few weeks and is generating mixed signals. Cash prices are near steady, although they have fallen and rebounded during the past few weeks, while the futures market has rallied particularly in the deferred contracts.

Cutouts prices appear to have stabilized and have even inched slightly higher in recent days, but packers are still not in a profitable margin situation at this point. Boxed beef movement has been slow, reflecting retail reluctance to accumulate beef while competitive meats are much cheaper and easier to feature, providing a better profit margin.

There appears to be a lot of optimism in the cattle market as grain prices slump, which is reflected in the feeder market which has been extremely strong of late.

On July 20, the U.S. Department of Agriculture released the Monthly Cattle on Feed report which indicated the number of cattle on feed as of July 1 was 99 percent of the year earlier, while placements were 85 percent and marketed during June was 97 percent.

The report was seen as friendly, particularly to the deferred months, as placements were less than anticipated by the trade. However, with the large run-up in deferred futures, many cattle have been held back from the show lists — which could force the packer to pay up for cattle in the short run and force the beef cutouts higher to try to keep packers from going further in the red. With weights already increasing rapidly, this could spell bad news in the months ahead for cattle prices. Producers are urged to keep current and use the current premiums in the market to lock-in summer and fall inventories and capture the positive basis.

The hog market is trying to stabilize after slipping over the past several weeks. Pork cutout values have begun to improve which in turn has improved packer margins and allowed the packer to become more aggressive in bidding for inventory. At the same time the futures market has seen increased speculative buying, which has added a lot of premium to the futures’ contracts in recent trading.

There have been considerable rumors regarding China and the potential purchase of U.S. pork in the past few weeks, fueling the speculation that hog prices will be forced higher.

Even if the rumors do prove true, it will be months before any shipments would take place, so short term the hog market might be vulnerable to a correction. Producers should stay current and use the extremely wide basis offered to lock-in summer and fall inventories.

     

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