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The short answer is: Probably lower than you think.
You asked about Feeders and Hogs.
Feeder Cattle: This is always a subjective market and is influenced by
factors that you would not normally think of. Feeders are part of the
basic formula FC + Corn = LC. Also, if there is abundant pasture there
will be a big demand for feeders to put them on grass awhile, and
conversly if there is a drought they will all get dumped on the market.
That's an example, there are a hundred other things.
My impression is that this year, many Ranchers are unwilling to take the
price bid for feeders, so they are retaining ownership right into the
feed lot. To take it a step further, had they sold the feeders the
prices would be lower than they are now.
Lean Hogs: Well, this morning they are quoting live hog prices in Iowa
at 8.50 to 13.50 $/cwt (that's $21.25 to $33.75 for a 250lb hog). If you
assume a 74% dress, that's a lean hog price of 11.50 to 18.25. Feb
futures are trading 30.07. If cash does not rally, I would expect the
futures to drop. The big premiums in the back month LH futures are
really bearish for the hog complex in general, it sends all the wrong
signals to the market.
As I understand the problem in general, many of the large hog producers
(Factory Farms) have a contract with the packers for "X" amount of hogs
at a fixed price (with some adjustments). I read last week that the
contract price is in the high $30.00's/cwt on a live basis (divde by .74
for LH price). With the current price of wholesale pork cuts, the
packers basically have let the price drop (on non-contract hogs) to get
to a breakeven on kill margins. According to the article I read last
week, if a packer is killing 40% contract hogs, they are close to
breakeven overall by paying current prices for the remaining 60% of the
kill.
To keep it simple, for cash hog prices to rally you would need either a
increase in the price of wholesale pork cuts (unlikely) or the contracts
to expire for the contract hog growers (impossible to evaluate). My
guess would be that there's money to be made shorting hogs, but it's
always dangerous shorting something that's close to zero.
I've kicked this around lately, and it's really amazing what you are
seeing in the physical commodity markets these days, and I've noted the
following observations:
I buy a lot of bottled water (I spend time in the boonies) and the
cheapest I've found is at Wal-Mart for $.50/gallon. That would be $24.00
per barrel (to compare with crude oil) and Crude is trading for $11.00,
and that's for the good crude.
I'm buying gas for $.74/gallon and that includes $.38 of road tax. So I
could buy tax exempt gas for $.36/gal. Too bad we can't drink Gas.
My wife made chicken noodle soup the other night, with a whole chicken.
After I complemented her on the fine meal, she mentioned that the bread
for the meal cost more than the meat.
China announced that they will produce 501-503 MMT's of grain this year,
which is just shy of the record 504 MMT's produced in 1996. And this is
with record flooding.
Remember last summer when the President announced all the grain
give-aways? Well, of the little tonnage that has shipped, it was
re-exported for cash.
It really makes you wonder what it will take to break the cycle. With
all the cash being pumped into financial assets, it makes you wonder how
they will perform should commodity prices ever start to rise.
K
> Meats Look cheap (Robert W Cummings , Mon 12:13)
>
>
> Any meat experts out there that have an opinion about how much lower we
> might see feeder cattle and hogs go.
>
> Robert
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