After a hard sell-off in the month of March, August cattle found strong support at 92 cents and roared back to close above the 6-month moving average on April 11th. The weak U.S. economy is not helping cattle prices, but the cheap U.S. dollar might be helping beef exports. It may be tough for August cattle to break above $1.00 (updated 5-7).

Fundamental Stats -

The discovery of mad cow disease in the U.S. at the end of 2003, hurt U.S. beef demand, but world demand continues to rise. Unfortunately, because the U.S. beef industry has been unable to deliver a consistent, quality product, many of the world's best customers remain off-limits. On May 9, 2008, the USDA projected that 2008 U.S. beef production will be up 1.1% to 26.7 billion pounds and so far, production is up 2.4% from a year ago. The USDA also raised its estimate of the 2008 average steer price from 90 to 91 cents per pound.

The April 1st cattle on-feed inventory was 11.684 million head, up .3% from last year and less than expected. March placements were down 11% and marketings were nearly even with a year ago. As of January 1, 2008, the U.S. cattle and calf inventory totalled 96.7 million head, down .3% from a year ago.

In early February, August hogs tried to trade above 80 cents, but couldn't stay for long. Prices fell to 70 cents by early-April, but then bounced quickly higher, helped by news of strong pork exports. The quick bounce is impressive and it will be interesting to see if prices can trend higher (updated 5-7).

Fundamental Stats -

Early in 2007, there was hope that hog producers would restrain production due to fear that the ethanol market was going to make it hard to obtain enough corn for feed. Corn prices did go up, but hog producers did not cut back production. In 2008, the USDA expects pork production to increase 7.0%, on top of a 4.2% increase in 2007. So far in 2008, U.S. pork production is up 10.9% from a year ago. On May 9th, the USDA increased its 2008 price estimate for barrows and gilts from 41 to 44 cents per pound (59.5 cents lean).

The March 1st count of all U.S. hogs and pigs was 65.91 million head, up 6.5% from a year ago and much more than expected. The December to February pig crop was up 5.0% from a year ago. Frozen pork inventory as of March 31, 2008, was 657 million pounds, up 33% from a year ago. Frozen bellies totalled 99 million pounds, up 79% from a year ago.

July lumber has been in a strong downtrend, obviously suffering from the weak housing market. The housing news is still poor, but on May 7th, July closed above the 50 day moving average that has described much of the downtrend. That is impressive and may be an early sign that lows are behind. Time will tell (updated 5-7).

Fundamental Stats -

After five years of court battles and disputes, the U.S. and Canada formed a new softwood lumber trade agreement on September 12, 2006 that is supposed to last for at least seven years. Roughly one-third of all U.S. lumber comes from Canada and so it is a relief to see the legal battle end (at least for now).

Lumber prices have been falling since early 2006 as the U.S. housing market deteriorated. On August 9, 2007, the sub-prime mortgage problem turned into an international credit crunch, forcing central banks to add liquidity and tighten credit standards for new mortgages. The result is that 2007 was a poor year for lumber prices, but the excessive pessimism may set up a better scenario in 2008.

In the big picture, the forest products industry has not been profitable and many traditional lumber companies have been selling their timber land and moving toward consumer products. Current lumber supplies are said to be plentiful while the market hopes for a change in demand. The U.S. Forest Service said that U.S. sawmills shipped 114 million board feet of lumber in the first quarter of 2008, down from 135 million board feet per day in 2007. In 2008, housing starts as of March were down 30% from a year ago and new home sales were down 33% from a year ago. In 2007, housing starts were down 25% after dropping 13% in 2006. 2007 new home sales were down 26% after falling 17% in 2006.