Lean Hogs: Two pieces of interesting fundamental information were released in the past few days. 1. Due to COOL (Country of Origin Labeling) US packers and US hog finishers do not want to use Canadian hogs. Last week imports of Canadian hogs were down 46% of last year's level. In the two weeks before that they were down 16% and down 23% respectively. Bottom line is fewer Canadian hogs mean packers are bidding just a little more for US hogs. This keeps us neutral to bullish on cash hogs and August lean hog futures. It also keeps us liking the August/October spread. 2. US pork exports in May were up 98% over May 2007. In the two previous months they were up 37% and 96% respectively. This is no surprise. Pork exports will be great all summer. The question is what happens to Chinese buys after the Olympics in August. Our downside target for December is $65. We remain 100% hedged through the end of the year and are happy with that position. We are not being aggressive on hedging 2009 contracts as liquidation going on now is a big variable. Now that corn has dropped $1 in the past few days is sow slaughter still big?
Live Cattle: We noted on Friday crude oil was our main focus for cattle pricing from March through June. Corn prices peaked, and concerns about the economy increased, in late June. We are now going back to traditional supply and demand fundamentals in our live cattle pricing. Will placements fall as much as expected with December corn at $6.80 as it would have at almost $8? That is a bearish factor. We are also noting concerns about the economy are still here, if not getting worse. From January through June non-farm payrolls fell from 62,000 to 88,000 head. This is not the 100,000 head losses economists start to get concerned about. However, will US consumers be eager to buy beef at x% higher than last year when they are concerned about the economy? Let's be realistic here. CME futures were implying something like a 20% increase over last year. Higher prices are due, as we have noted before, but futures have been fundamentally overvalued. We started hedges on the October and December today at 25% of expected marketing’s.
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