wmeubank@ocp.kcmo.com
THE HIGHTOWER REPORT
Prepared by The Hightower Report
Livestock traders appear to be stuck in a rut with the idea that the markets are near a seasonal low. Small speculators appear to be very active buyers trying to pick a seasonal low while large speculators (funds) continue to increase their net short position. The steady rise in open interest for both cattle and hogs over the past few weeks indicates increased volatility is likely ahead. Different from just a few years ago, exports play an important role in both short and long-term price discovery. The market is in the process of absorbing a sharp rise in domestic production with record high weights of hogs, large feedlot supplies of cattle and the ever increasing poultry production. If poultry and beef exports to Asia slow for November and December, the U.S. market will need to absorb even higher than expected supplies. China's poultry exports for 1998 are now expected to fall as much as 30% from 1997 exports of 315,000 tons, with Japan the largest buyer. This is mainly due to increased competition from Thailand and slower demand from the Asian community in general. With the Thai currency devalued about 50% since August, both U.S. and China poultry is suddenly much more expensive.
U.S. livestock traders sometimes forget to look at the short-term impact of a slowdown in exports. Unless storage capacity suddenly can expand, the bulk of meat which is not exported moves on the domestic market. Keep in mind that Asian countries represent about 27% of the total U.S. poultry export market with these sales being over 6% of the total U.S. poultry production. In beef, Asia represents about 63% of the export market or 4.5% of the total U.S. beef production. Therefore, the recent sudden shift in stock and currency prices of these countries will likely cause meat buyers in Asia to at least temporarily slow buying. Adding 2-3% more meat on the U.S. market for December can have a significant impact on price. While technically oversold, and still subject to potential weather disruptions, rallies during early December still look to be selling opportunities for hogs and cattle.
SUGGESTED TRADING STRATEGIES–1) Sell February cattle at 68.70 with an objective of 66.55. Risk the trade to 69.52.
2) Sell February hogs at 61.87 with an objective of 58.60. Risk the trade to 62.57.
For daily market analysis of the Hightower Report's Comprehensive Commodity Research, call 900-225-2200, extension 4 for Livestock Market Forecast. The cost per minute is $1.33.
December 8, 1997The Hightower Report
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