wmeubank@ocp.kcmo.com
COMMODITY INSIGHT
152 Ennis Lake Road, Ennis, Montana
(November 23, 1997) CATTLE: By the close of trading on Friday, nearby live cattle futures ended the week at their highest levels in nearly two months. Hog prices on the other hand, ended the week at a two-week low. Obviously, the outstanding feature in the livestock pits this past week was the cattle market assuming a leadership role in the critter complex.
Will such a scenario continue? Hard to say. But with hog slaughter levels considerably above what has been expected along with a rise in individual hog weights, pork prices could dip to new contract lows rather quickly. In addition, the Cold Storage report released after the close on Friday, was bearish for bellies. As a result, the opening call for Monday is 75 to 100 points lower for pork belly futures.
It is difficult to say with certainty that the current rally in cattle prices will continue. According to the latest Cattle on Feed reports there remains a good number of cattle to work through between now and the first of the year. However, the C.O.F. report also suggests that once we work through those heavy cattle numbers, prices should ratchet higher into late 1998.
It's entirely possible that the cattle market is already anticipating a bull move in late 1998 and beyond. Therefore the lows may already be in place. But it is also possible that the current cattle rally will fail, as most rallies for most commodities have for the past six weeks.
If the current cattle rally does indeed fail (as I expect it to) I will view the break as an opportunity to go long the market. For the next five days, buy (1) April cattle at 70.00 and (1) more at 69.20. Cattle prices should establish a long-term low by January 1. Assuming of course, they have not already done so.
Jerry F. Welch
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