CME: Livestock Futures Take a Tumble
US - Livestock futures tumbled on Monday on continued weakness in equity and currency markets, writes Steve Meyer and Len Steiner.Nearby live cattle futures were down 75 points for the day and they are now down some 450 points compared to a week ago. Nearby hog futures declined by more than 200 points as selling in the heavily traded summer contracts accelerated later in the day.
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Hog futures are also down some 430 points compared to a week ago. While there is a bit of weakness in cash markets, as the chart below shows, nothing has changed in domestic and export markets to justify the kinds of declines we are seeing at this moment. What is going on, however, is that market participants are looking to reduce their risk exposure, fearing the impact of a new financial crisis on the global economy.
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Money seems to be flowing outside of commodities looking for safe harbors, with gold at all time highs (see chart below) and US$ denominated bond funds also trading strong. We can talk about fundamentals in the beef and pork complex but the current situation reflects much more powerful forces at work. As we noted a few weeks ago, the situation in Europe remains very significant for the global economy at large.
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At this point few expect the Euro currency to
just roll over and die but there is a broad consensus that the common
currency will drift lower for a bit longer. Markets are clearly
demanding that European governments rein back spending.
Greece was the first to adopt a series of measures that will reduce
government spending on a number of programmes and other high
debt countries are expected to do the same. This may be all nice
and good for those that have lent money to these countries but it
does pose a threat to economic growth for Europe as a whole. Germany
may be a strong economy but part of that strength is due to
its ability to export to other countries in the EU. Good, bad or
indifferent, government spending in Europe is a significant part of
the economy and reducing its role via budget cutbacks, will be a long term and politically challenging undertaking.
But returning to US livestock markets, there are two issues we want to point out. First, seasonally prices for beef and
pork tend to soften a bit going into June as much of the Memorial Day purchases likely have been completed. It will be particularly
interesting to see what happens with pork prices, especially given the recent weakness in the Mexican peso. If ham prices
start to soften, it will not bode well for hog prices in July and August. Second, watch out for chicken supplies, especially if we
see further declines in grain prices.