Published: September 09, 2008 03:51 pm            

Livestock Angles: Exports first drive hogs up, then down

Originally published in the September 5, 2008, print edition.

The hog market has been the focus of attention over the past few weeks as prices have plummeted after the huge summer run-up in prices.

The thing that had been the catalyst for the hog market strength over the past several months turned out to be the object that created the steep decline in the last half of August. That thing was export business. Throughout the year, the export of pork products had been the positive influence on the hog market and the firm prices despite the large numbers of live inventory.

As cutout prices reached over $90 per hundredweight in the middle of August and the U.S. dollar began to rise in value against most major currencies, the volume in the pork product trade diminished rapidly, causing the packers to lower the bids for live inventory in a hurry.

In reality the high prices for pork product and the strong U.S. dollar literally priced pork out of the market and thus export business dried up.

In the last week of August the Russian government announced they would cut back on U.S. pork imports because they were unable to produce enough to satisfy domestic needs. This type of rhetoric obviously had a negative impact on hog prices, sending them plummeting to new lows for August.

The bright spot in this break in hog prices is that volume in pork product is beginning to pick up once again as these sharply lower prices are attracting wholesale buyers. With such a steep decline in prices, the market has become oversold and is now in a position for some sort of recovery in the next few weeks.

Producers should be patient and use these recovery rallies to lock-in fall and winter inventories.

The cattle market has eased back in price during the last half of August as, like the hogs, the beef cutouts moved too high and the volume in the boxed beef trade began to decrease.

This forced the packers to be more cautious in their bidding for live inventories and thus live prices eased lower. It would appear that the number of market-ready cattle is tight enough to offset the decline in demand to keep the cattle market from any sharp declines at this time.

With competitive meats relatively lower in price than beef at current levels, expect the cattle market to continue to struggle on any rallies. At the same time because of the reduced numbers of cattle-on-feed, large setbacks are not foreseen in the immediate future either.

Therefore, it would appear that the cattle market is likely to be somewhat range-bound for the next several weeks. Rallies in the beef cutouts will undoubtedly receive considerable resistance from the retail sector with the cheaper pork and poultry prices.

At the same time as prices drop, buying interest is more than likely to resurface and stabilize beef cutouts which should hold any further declines. Producers should take advantage of the potential range in prices and lock-in inventories on any sharp rallies in cattle prices.

        

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