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Better than expected exports for the month of February and a continued trend lower in total meat production for the domestic market leaves more upside potential for the cattle and hog futures in the months just ahead. The enclosed charts show the strong seasonal tendency for beef and pork prices to move higher in the April to May time frame. With just a hint of better consumer demand and the possibility of seeing some better grilling weather for the late April-early May weekends, the livestock markets look set for some additional upside moves. June hogs hold a stiff premium to the cash market but no higher than normal, while June cattle are trading at a discount to cash and a discount to April cattle. Funds have built a large net short position in the livestock markets and may be caught if there is a brief period of stronger consumer demand.
Total read meat production for 2009 so far is running 4.2% under last year, and the market is entering a time period just ahead when demand turns strong. In addition, poultry production in the next few months is expected to come in around 6-8% under last year. Along with the low production, the weak economy and slow exports have combined to keep prices near or, in the case of cattle, below than last year. The enclosed charts show the strong seasonal tendency for pork and beef prices, and while we do not expect to see a rally as strong as last year, the supply fundamentals appear set to fuel the rally once it gets going. Pork prices are already up 10% from the early April lows, and beef prices are beginning to follow last year’s pattern as well.
Feedlot supplies of cattle are near a 4 year low, and February beef exports were up 11% from last year now that South Korea has entered the mix. Chicken exports in February were up 10.6% from last year, and year-to-date chicken exports are 21.4% higher. Keep in mind that June cattle bottomed on March 31st of last year and managed a rally to 101.50. While we do not expect a rally of this magnitude, a rally to the 88.00-90.00 level appears to be possible. This would especially be true if the US and world economies were to show some sign of bottoming. Pork cutout values moved from 55.00 in early April last year to near 83.00 by late May. The reason for the seasonal gains in pork prices is that pork production generally falls from the first quarter to the second quarter. For 2009 the seasonal drop is expected to be the second biggest in history, which suggests that the rally may be stronger than normal this year.