Meat Markets in May | RJO Futures

May 8, 2017 11:26AM CDT

Every year, certain market patterns repeat themselves due to the supply and demand of a specific commodity. These market patterns wax and wane due to volatile weather, variable growing seasons, and consumption demands. For example, cattle slaughter usually culminates in May-June. Therefore, seasonal disparities between cattle supply and cattle demand affect the price structure of the meat market. Since people consume less meat over a hot summer, beef supplies are still large going into October. Conversely, cattle slaughter subsides during the winter time when meat consumption is in high demand.

This pattern generates the spread idea to buy February cattle while selling October cattle. The entry for this spread is today, while exiting the spread should be around June 7th. Another observation creates a different meat spread for the end of this month. Just as cattle slaughter peaks in May-June, hog slaughter is at its lowest point. So you have the situation of low cattle prices due to excessive supply, while hog prices are generally high due to lower supply. This pattern tends to favor cattle during the autumn months, especially in the December contracts. So buying December cattle when cattle slaughter is at its lowest point, works well with selling December hogs when hog slaughter is at its highest point!

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