High beef prices and rising demand for pork products as a cheaper alternative are setting the stage for beef to take a back-seat in production (for pork) for the first time since 1952. Both livestock animals have been hit hard lately with drought, high feed costs, and disease these last few years, but hog herds have rebounded sooner and circumstances have led to the breeding of more pigs and bigger animals.
The USDA estimates domestic pork output to increase 4.6% this year (to an all-time high) while at the same time cattle ranchers are still recovering from the 2012 drought that has brought cattle production into what will be a 22-year low. Just over a month ago, for the the fourth-quarter 2014, the USDA reported the breeding-sow herd posted the biggest increase since 1998 with the total hog population jumping 2% from a year earlier.
“Nobody could have ever predicted these circumstances with the beef to pork ratio this time last year,” said Gerry Plotkin, a Senior Market Strategist for R.J. O’Brien in Chicago, shared his fundamental analysis insight regarding the current livestock futures situation. Plotkin added, “With the domestic cattle herd at 60-year lows, disease plaguing the pork industry, and high feed prices it is remarkable at least one side of the livestock industry is rebounding.”
The trend for both cattle futures and hog futures are down with no clear bottom yet in sight. However, if last week’s lows hold in both feeder cattle and lean hog futures, then we can at least see some type of relief rally before another test of yesterday/today’s low.
ALL COMMENTARY IS CONSIDERED OPINION & VIEWS FROM THE AUTHOR AND NOT A SOLICITATION OF ANY SECURITIES. THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.