Livestock Angles: Selling pressure hurts cattle market

June 20, 2008 03:06 am

— The cattle market appears to have found a short-term top during the first week in June. The futures market after vaulting higher early in the week met considerable resistance and began to come under selling pressure by mid-week. At the same time the cash trade began to falter and prices ended up trading $2 per hundredweight lower on the week.
A main factor is the beef market which continues to find resistance at higher prices. This coupled with the unrest in South Korea over the importation of American beef has caused the market to slip from the highs.
A big factor in the rapid rise in the futures market has been the speculation that because of high grain prices, herd liquidation will decrease the supply which in turn will force prices higher. However, with the current economic situation and in particular the extremely high energy costs, the consumer is being squeezed and this is reflected in the slowing boxed beef sales.
It is quite possible in the last quarter and into the first quarter of next year the high cost of feeding will decrease the supply of cattle enough to warrant higher prices. But in the near term the supply of market-ready cattle appears to sufficient to meet current demand.
The volatility in the market has been high lately with rapid moves in both directions and should continue for the next several weeks. This has also created high premiums in the deferred cattle contracts and is providing producers with the opportunity to protect inventories with extremely wide basis.
The hog market has also run into a problem with higher prices. The past several weeks have seen hog prices drift lower off the highs set in May. Seasonally, this is historically in line with previous years and if the pattern follows its normal trait the lows will come in the late summer months.
But is this a typical year with the high feed and energy costs? Time will tell, but it would appear that there has been some liquidation taking place as the hog-corn ratio has dropped substantially during the past several months. If the number of hogs has been reduced as suspected, the bottom of the seasonal decline might well come earlier than normal this year.
Export demand is still good while domestic demand has faltered slightly with the higher pork cutouts. Obviously the trade believes that numbers will be down through the remainder of the year as the deferred contracts all carry huge premiums to the current price. Producers should remain aware of these premiums and use them to their advantage.

Copyright © 1999-2008 cnhi, inc.