Animal Cloning: A week or two ago the Food and Drug Administration announced meat and milk from cloned animals was as safe as from traditionally raised animals. This would imply there would be no separate labels or anything for meat or milk from cloned animals. Up until this point the owners of the 600 cloned cattle, swine, and goats had voluntarily not sold those animals or their offspring into traditional channels. Tyson Foods and Smithfield Foods have noted they would avoid using cloned animals. We are not really concerned about how this could eventually affect US meat consumption. Our concern lies on the export side. Asian buyers are much more interested in their foods than we are. If we start allowing cloned animals into our meat supply we could see foreign buyers back away or even drop purchases of US meat. It is not happening right now but is a possibility for the future.
Lean Hogs: The let off in pressure from the Wall Street Stock Market was the prime driver in giving the CME action a better tone. Whether that "stock market hype" even belongs in the pork pits is another question entirely. Also supportive, last week we noted it appeared the cash hog low was posted on the previous Friday, which was the 11th. The lean hog index for cash hog trading average that day and the previous day was $47.97. As of this Wednesday it was up to $50.63. With Thursday's trade factored in it will probably be around $51.40. With that in mind, CME futures are trying to do the juggling act of figuring just what type of premium to cash hog prices to plug in. Cash hog prices typically rise from winter into fall because slaughter numbers decline. There is no argument that big premiums are due. Also the trade has to guess just how much larger the 2008 hog supplies will be compared to last year and then find the appropriate pricing point. Currently February futures, though holding a good premium to cash hog prices, are actually $11 under the price for the same period last year. What is needed? We are still at tremendous production levels. The April contract is running around a $2 to $3 discount to the same period in 2007. The same discount is seen on the May. It is still interesting to see June and all other deferred contracts hold premiums to 2007 levels. Hog slaughter will remain a good deal higher than in 2007 through the first three quarters of 2008. Allendale forecasts that prices will be lower in the same period compared to 2007. We feel that current summer futures prices are an opportunity for hedgers. The only big mis-pricing as we see it, is the December 2008 contract. We project slaughter will be down 1% from the massive record supplies which hit in 2007. No one will argue that lower supplies and a little better demand will make for higher 4th quarter 2008 prices than 2007. At Thursday's CME close the December contract is priced almost $20 higher than 2007! It is also priced $12 higher than the four-year average! That is pretty ridiculous. On the speculative side we like selling April calls or puts as April futures may not move a whole lot in the coming weeks.
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