An Excerpt from CRB'S Futures Market Service.
LIVE CATTLE
Cattle prices are just below the recent record nearest-futures high of $1.26375 a pound, the highest since cattle futures trading began in 1964. Bullish factors include (1) the Cattle on Feed report showing a -5.9% y/y decline in feedlot purchases of cattle, the biggest drop in 7 months, which fuels concern cattle inventories will tighten in Apr and May, right when seasonal demand improves, (2) strong foreign demand with Jan-Nov U.S. beef exports up +23% y/y, (3) slack future supplies as USDA estimates the number of calves born in 2011 will be 35.3 mln, the fewest since 1950, and (4) USDA’s Jan 27 bi-annual cattle report showing the US cattle herd on Jan 1 fell -2.1% y/y to 90.77 mln head, the smallest since 1952. Bearish factors include (1) record high prices that may curb demand, and (2) the +2.2% m/m and +1.4% y/y increase in Dec beef cold storage stocks.
Fundamental Outlook—Bullish—Cattle prices are near record highs as beef supplies continue to wane. Bullish factors include (1) strong foreign demand with Jan-Nov US beef exports up +23% y/y and (2) slack supplies after the Jan 27 USDA bi-annual cattle report showed the total US cattle herd at a 60-year low.
LEAN HOGS
Hog prices posted a 1-3/4 month high but remain only modestly above December’s 1-year low. Bullish factors include (1) strong foreign demand with Jan-Nov U.S. pork exports up +23% y/y, (2) increased domestic demand after U.S. ham inventories as of Dec 31 tumbled -19% y/y to 55.4 million lbs, and (3) the prospects for increased US pork exports to Japan on nuclear concerns and to South Korea after it extended its tax-free pork imports until Mar 31 due to its 25% cull from foot-and-mouth disease. Bearish factors include (1) increased output after the USDA said 2011 U.S. pork production rose +1.4% y/y to 22.8 billion lbs, (2) increased supplies after hog carcasses on Dec 30 averaged 211.5 lbs, a 1-year high and (3) the quarterly Hogs & Pigs report showing a +1.5% y/y gain in the total U.S. hog herd and a rise in pig litters to a record 10.02 pigs in the 3 months ended Nov 30.
Fundamental Outlook—Bear Market Correction—Hog prices are in correction mode as foreign and domestic pork demand remains strong. The quarterly Hogs & Pigs report (Dec 23) showed a +0.4% increase in the hog-breeding herd to 5.803 mln sows and sows averaged a record 10.02 pigs per litter in the 3-months ended Nov 30.
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