Hogs face odd problem, and cattle has bullish bias

By Rich Nelson

Hogs: The hog market has a peculiar problem right now: a regular slaughter level. Instead of packers scrambling to find a single hog alive right now, their phone is ringing with more than adequate supplies. As it stands, this week’s kill is running a full 1.6% over last year. This is a tough issue to swallow when all the trade has heard about for months was how bad the PED issue would hit in December. Keep in mind there were well-known analysts discussing a 2% to 5% year over year decline in hog slaughter right now.

While we could write quite a bit about this issue, it will all be review. We have said very clearly before that trading hogs right now is no more than a 50/50 proposition. With USDA’s September HP survey and no clear way to map out potential PED slaughter impacts, we don’t have any special ability to forecast prices. IF there was no PED we have previously stated December would be at $84. If there is PED to the level we had suspected then $88 is the number. For other trades, that we have discussed but not enacted, we still like the June/February spread or just selling February. Without a good idea on potential production, we will not jump on those trades.

Cattle: Cattle country is still talking about steady to possibly higher trade for this week’s cash action. Last week’s packer purchase, at higher prices, has reignited some bullish momentum. While we are bullish on this market, for a peak expected in February or March, this market is not yet in the middle of this supply problem. It is only just entering this tight supply period. This may explain why we make good gains then see some setbacks here.

Additionally, the trade is also watching weather closely. Given that there are typically one or two storms in the Plains each winter that get the trade’s interest, many are suggesting it is only a matter of time.

While Allendale remains raging bulls for this market, the question here is squarely on demand. Wholesale beef hit $200 for two separate weeks in November but has not been able to post a weekly close clearly above that mark. This psychological resistance will remain until our supply argument is traded.

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