Getting "Bullish" The Livestock Market
Jan 05, 2011
I am moving from "Neutral" to a bullish rating of "1" in both the cattle and hog market. I will be looking to be a buyer on the pullbacks or a seller of puts on a heavy break to the downside. I have felt these markets may be due for a significant pull-back but I just don't see it happening any time soon. There are just too many bullish variables in the air and the market seems content on trading higher. Don't get me wrong there will certainly be some set-backs, I just don't think many sustained breaks to the downside will last very long. The higher grain prices are almost certain to keep the herds from expanding, and export demand looks poised to push even higher. The latest talk of "Foot-and-Mouth" disease, and that South Korea may need to import more meat ASAP could fuel the markets even higher. Not only are reports circulating that it is the worst outbreak of foot and mouth disease in over a decade, but now there are talks of bird flu outbreaks. On Sunday there were rumors floating around in South Korea that several new cases of the highly contagious foot-and-mouth disease, along with a couple of first bird flu outbreak had been spotted. The Ag Ministry has since come out and confirmed that there were actually seven new cases of foot-and-mouth disease in cattle and pig farms found this past weekend, and they also confirmed their first two cases of bird flu (not seen in more than two years). The part you may not have known, is that this brings the total number of cases of foot and mouth disease to 85 in just the past 33 days. I can not be certain to how this will play out, but back in 2002 a similar type outbreak spread rapidly and resulted in an 160,000 animals needing to be killed. I have heard the government has hit the panic button, and in just the past two weeks have vaccinated more than 450,000 head cattle in hopes of preventing the spread of the disease. They have also slaughtered 100,000 birds to try and stop the bird flu outbreak. Any way you slice it this is bullish the market longer-term. If these diseases starts to spread traders will get very nervous with China just around the corner. If the herd is trimmed to eliminate the spread then South Korea may be forced to increase imports. Regardless, any country that has to use vaccinations to regain disease-free status from the World Organization for Animal Health are subject to extensive testing, resulting in massive delays in exports.
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