Harrington's Sort & Cull
John Harrington DTN Livestock Analyst

Friday 07/27/12

Repent, The World Ends Tuesday -- Or Not

Hair shirts can be tough to fit. The same garment that seems perfectly tailored for the apocalypse, when you first put it on, can hang like 40-grit sandpaper by the end of the day.

And the longer you have to stay dressed for doom and gloom, the more you itch in discomfort. Eventually, if fire and ice is delayed long enough, you start entertaining optimism just for the sake of fresh clothes.

In a way, this seems to explain the impressive recovery in deferred lean hog futures since the lows established on Monday. If end-of-the-world fanatics can make themselves sick with their own extremism, surely the same can be said for overly zealous market bears.

Pessimism regarding the late year hog market began to "drape the crepe" in the second quarter when the traditional rally in spring and early summer prices was found to be missing in action.

The longer warm-weather bullishness was postponed, the more irresistible the bearish logic regarding fourth quarter lean hog futures became: if hog and pork demand was this puny smack-dab in the middle of the year's "sweet spot," it was could well be unbelievably bad in the Oct-Dec period when supplies would be much larger

By the time hog prices finally took hold in late June and early July, extraordinary discounts of $10 to $12 were pretty much set in stone. The late-flowering cash never had a chance in lifting all boats in the CME pond, especially not in the face of a spreading drought that threatened to force wholesale livestock liquidation.

So what has changed as we begin to move into the late summer period? What caused deferred hog futures to rally 400 points or so from the lows of Monday? Why did the summer/fall spreads suddenly narrow by more than $2?

Maybe it was nothing more concrete than the vitality of market emotions and the explosiveness of price potential. In short, I wonder if some hog traders began to bore themselves with their own bearish rhetoric.

At the same time, others may have started to question whether the anticipation of such an extreme price collapse (recently estimated by the July-December lean spread at more than $30) was at all justified by their dubious track record in the art of prediction.



Posted at 5:05PM CDT 07/27/12 by John Harrington
Comments (1)
Hey John, You article got my attention. I like how you say repent. That means in bible turns "turn" from your wicked ways (ways other than following God). If I could offer something to the discussion. People aren't going to ever turn back to God when they don't think there is a God. Only fool says there is no God. I think what we are witnessing is just how feeble mankind really is. We can't make it rain, we can't cause the increase. Something larger than we can imagine is sustaining our lives. None of us had a "choice" to be born. None of us keep our hearts beating. None of us keep our lungs breathing. If Life is given to us and sustained for then its only right we honor the one that gave us life. I think throughout all these crisis we are realizing we need someone other than ourselves to help us. As America "willingly" turns from the source of Life, none of this should catch anyone off guard. We choose Life and we choose death. I believe God protects the people that follow Him and seek Him with their whole heart. I take comfort in the fact that He never leaves us nor forsakes us. On the cattle front. It has never been a greater time to be in the Beef Industry. It's a niche market. While people chase the buck with corn and beans. The cattle producer that has vision for the future can put himself in a dominant position. People need food to survive. Cattle is the best piece of meat on the market. People will always have a desire for Beef. The cattle producer always creates new ways to grow and expand. I am going to go by the reference of the Bible. There will always be cattle as long as the earth remains. I enjoy your posts and keep up the good work. Bruce Cumberland
Posted by Bruce Cumberland at 11:22AM CDT 08/01/12
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