031021 Market Watch - Bull Story In Meats

AgWeb.com - It was a wild and wooly week in the commodities pits. The only place where prices didn't change much was the hog pit, with October hogs only 10 cents higher than they were the week before. Appearances are deceiving, however. October futures were constrained by the fact that they are expiring this week, and have to stay close to the cash CME index. Deferred contracts were sharply higher. In all the other commodities, prices were either up sharply or down sharply. There was no middle ground. On the up side, October cattle were up a whopping $7.50, or 8.35%, followed closely by October soybean meal, up 8.24%. On the loser side, December CBT wheat lost 26 cents, or 7.24% of its value from the previous Friday. The other wheat markets were also down. Rice was off 4.52%, and Corn was down 7 cents, or 3%. In other words, feed and food grains were lower, oilseeds and meats were higher, and fiber (cotton) chose to side with the bulls.

The bull story in meats is well known.

US beef production is down on the year, and so are imports of beef from Canada. That leaves boxed beef cutouts screaming higher, and cash cattle running to keep up. Most of the cash trade occurred mid-week, and the boxes continued to rise after that. This action suggested to traders that cash prices will be higher again during the week of October 13, and kept futures bullish. The discovery of variant BSE in a 23 month old Holstein bull in Japan also raised questions about Japanese demand, and potentially derailed discussions to open up the US border to imports of Canadian live cattle and feeder cattle. The hog market has failed to benefit from the huge price run up in beef, primarily because we're at a time of year where hog slaughter typically peaks above 2 million head per week. That keeps plenty of fresh pork in the pipeline, as evidenced by a $9 slide in fresh bellies on Wednesday and Thursday. However, Mr. Market is attempting to buy more hog production for next spring, with 2004 contracts up sharply. Maybe he DOES think consumers will demand more pork later on?

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