Protein Producers Prepare For Grilling Season

The animal protein sector is preparing for the 2018 grilling season, and pork and beef supplies, together with weather conditions over coming months, will determine the path of least resistance for both, said Andrew Hecht, author of the “Hecht Report” on Seeking Alpha.

Memorial Day weekend marks the official start of the grilling season, the peak demand period for animal proteins, and live cattle futures prices strengthened recently, while hog prices declined, Hecht said.




Apr live cattle futures had been climbing from a low of $1.1805 a pound on Jan. 11 and reached its most recent peak at $1.2795 on Feb. 20.  Technical support remains at the mid-January low, and resistance for the Apr contract is at the early November high of $1.3010 a pound, he said.

Last week, the price corrected lower and was trading just under the $1.25 a pound on Friday.

The slow stochastic, a momentum indicator, crossed to the downside, which could mean live cattle futures are heading lower in coming sessions, Hecht said.




Meanwhile, the daily chart of Apr lean hogs shows the opposite price action, he said.  Hogs fell from highs of 77.25 cents a pound on Jan. 8 to lows of 68.025 cents on Feb. 16 before turning higher to Friday’s high above the 71-cent level.

Support for the Apr contract is at the Aug. 30 low of 65.05 cents a pound, with technical resistance at the 77.25-cent January high, Hecht said.




In many ways, animal protein prices are highly dependent on grain prices as grains are the primary input in the production of cattle, hogs, chickens and turkeys, Hecht said.

The US is the world’s leading producer of corn and soybeans, and drought-ravaged grain and oilseeds rose to all-time highs in 2012, Hecht said.  This capped a long rally from 2010 in corn and soybeans and put pressure on animal producers.

But instead of paying higher prices for feed, producers sent their cattle and hogs to slaughter early at lighter weights, he said.  They decided the economics of paying for feed were deteriorating, and they cut their losses by selling for less while saving on feed costs.

That caused a short-term market glut but resulted in a medium-term shortage, particularly in the case of cattle, Hecht said.  Live cattle fell from $1.22875 a pound in April 2011 to a low of $1.0075 in June and then proceeded to rally to a high of $1.3125 in March 2012.

The rise in grain prices caused cattle to drop to $1.12225 a bushel in May as additional supplies from early processing weighed on the price, Hecht said.

Following the May 2012 low, cattle prices rallied for more than two years reaching a record high of $1.71975 a pound in October 2014.




No fed cattle sold Wednesday on the Livestock Exchange Video Auction for the second straight week.

Cash cattle traded last week at $127 to mostly $128 and up to $129 per cwt on a live basis, down $1 to $2 from the bulk of the previous week’s action.  Dressed-basis sales were reported at $204 to $205, steady to up $2.

The USDA’s choice cutout Monday was up $1.15 per cwt at $219.52, while select was up $1.90 at $214.72.  The choice/select spread narrowed to $4.80 from $5.55 with 63 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Friday, was $148.30 per cwt, up $0.67.  This compares with Monday’s Mar settlement of $145.55, down $0.45.