In the first three weeks of June, all that we have solid information on, the weekly sow kill was 8%, 12%, and 17% over previous year levels. It is clear that hog producers may have started reacting to higher corn prices. Now that corn prices fell hard, will they keep the same enthusiasm? So far we have not seen the liquidation needed to support the premiums in mid 2009 contracts. We have argued in recent days that we look for cash hog and pork markets to stabilize soon. The CME trading indicators we follow (volume and open interest) have so far not backed up those expectations. Instead of an outright long on August, we will keep trading simple and work on the August/October spread. We remain bearish the deferred contracts and have a price target of $65 for the December contract. For hedging we have the green light to add 2009 contracts to our hedge portfolio but are not pulling the trigger just yet.
R-Calf brings up some old business. USDA has been ordered to reopen the public comment period relating to last fall's decision allowing imports of Canadian beef and live cattle into the US. R-Calf had been unsuccessful in its bid to stop imports of Canadian beef and cattle. A recent lawsuit was successful in arguing USDA did not have an adequate comment period. Keep in mind this is not saying we will stop importing Canadian beef and cattle, only that they did not have a long enough comment period.
Steep losses in corn, crude oil, and gold all helped trigger fears of a "commodity" sell-off. This is affecting live cattle in two ways. The idea is sharply lower corn prices may make the drop in placements not as severe and therefore a few more pounds of beef in a few months. The other way is indirectly in the form of "commodity" buyers. We have argued that around half of the premiums in this market are correctly due to fundamentals. The other half is likely due to general "commodity" buying. Have cattle topped and will commodity buyers drain money out of this market? At this time we will assume the big money will be harder to knock of this market. Allendale feels we could see a lower open Tuesday based on an expected lower corn open but at this time cannot call a top in live cattle futures.
|
|
|