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Livestock Markets Weigh Supply, Demand
It might be premature, but we are going to take profit on the short call position for speculative trades. Last week, cash hogs fell 3.86 while cash pork fell 3.08. This week through Thursday, the cash hog drop was 1.76. Through the Friday morning meat report, cash pork is down only 59 cents.
This week's kill fell to 2.306 million head. That was the lowest run in six weeks. The previous week's number was 2.343. Hog supplies fall in almost each week from winter down to summer. This year, with our adequate supplies, there was a temporary five week period of increasing kills.
On the positive side, that period is over and we are now ready to get back on the falling supplies bandwagon. On the bear side, this year's decline into summer will be a bit of a muted one. This week's kill was 6.8% over last year.
We wonder how long it will take for futures to get excited about the return to lower production rates. It is still a bit early for the seasonal low of April 14 but we are not willing to take the chance.
The stubborn bulls in the cattle market remind us that there is a bullish hope out there. While we completely disagree on the cattle side we can reluctantly agree with the bulls on the hog end. We are offering end users a chance to buy discounted pork ahead of the seasonal outdoor grilling season in the US.
On the beef end, the avalanche of offered cattle from mid-April through July blow through the uptick in demand.
On the hog end, tightened supplies in the summer exaggerate this bullish issue. This means we can ignore the long term bear issues for short run up into May/early June then hit hedges hard for hog marketings through February 2018. Though we are talking of a bull rally here, we are not bulls. We remain deeply concerned over profitability for Q4 and Q1 ahead.
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