December 9, 2013
Fed cattle, lower
Feeder cattle, steady
Lean hogs, steady to higher
Wall Street appears poised to open steady to higher on repots Friday that showed U.S. employers hired at a steady pace in November helping trim the unemployment rate to its lowest level in five years. Signs of an improving jobs situation will intensify debate at the Federal Reserve about paring back bond purchases and easing easy money as early as this month.
Fed cattle could slip this morning of Friday's weaker cutouts. After four down days, hogs could be due for a correction.
Cash fed cattle. On Friday USDA reported light to moderate trading in Nebraska. Compared to the previous week, live sales ran steady to $2 lower, ranging from $131 to $133 and dressed sales ran $1 to $2 lower for the week at $208 to $209. Trading was light in Colorado with live sales $1 to $1.50 lower at $132.50 to $133.
The Texas Panhandle and Kansas traded Thursday at $132.
Friday's morning cutouts were lower with choice down 39 cents and select off $1.94. Afternoon cutout values were lower to sharply lower on light demand and light to moderate offerings. Choice was down 94 cents at $201.47 with select down $2.64 at $186.98. Load count totaled 157.
USDA estimated Friday's cattle slaughter at 113,000, with Saturday at 33,000. Total for the week of 629,000 is up from last week's holiday-shortened 555,000, but down 19,000 from a year ago. Total so far this year of 30.056 million is down 1.7% from last year.
Cash feeder cattle. Compared to the week before Thanksgiving, last week's feeder cattle and calf markets were active following the Thanksgiving holiday week with many markets selling two weeks' worth of receipts.
Price trends were split with the Southeast and Southern Plains trading mostly steady to $2 lower on heavier feeding calves, while lighter weights were $1 to $4 lower, especially throughout the Southern calf auctions. Midwestern and Northern Plains calf markets were fully steady to $2 higher on more attractive offerings with many of the best producers marketing their calf crop this time of year north of I-70, which will continue through January.
Southern demand was hampered by the approaching ice storm that arrived late in the week and halted travel from east Texas diagonally through Arkansas and into Kentucky. The arctic blast was bitter cold with spotty snowfall in the upper central portions of the United States, but these natives are more acclimated to the cold and shrug it off as just the time of year. With temperatures near zero in Ogallala, NE on Thursday, the local sale barn sold 5,800 head of feeders on an active market with a half load of fancy hard-weaned 455 lb steer calves at $255.50, similar 5 weights from $201 to $219 and a load of light 6 weight steers at $198. Many of these top quality calves were reportedly sent south to Kansas wheat pastures to put on cheap gains before heading back to Nebraska feedlots this spring.
Feeder cattle price levels continue to defy gravity with the most reasonable feed costs and availability in several years behind the constant and consistent boost. CME cattle futures contracts have also been fairly cooperative with this fall's record-high feeder markets, but there's not nearly the hedging pressure from cattle growers and feeders as there has been the last several rounds when the Board was the only hope to scratch out a profit. Cattle investors are much more confident in their purchase when they have a good handle on their feed inputs, even when they are paying over $1,100 for a calf that might run between their legs without incident.
Speculative demand has arrived in the slaughter cow auctions that until recently did not have much activity other than a couple packer buyers and an auctioneer. Reports of $2,500 bred cows and $3,000 pairs has stirred about anybody with a gooseneck and a bale of hay to try and pluck somebody's possibly pregnant cull cow or one with enough youth to give another try. Tight inventories have fully trickled all the way down and beef cattle of any class are highly sought after and appear to be secure property for at least the next three years. Finished cattle in Texas and Kansas feed yards sold steady at 132.00 this week while Northern feedlots traded 1.00-2.00 lower from 208.00- 209.00. This week's reported auction volume included 44% over 600 lbs and 38% heifers.
Cattle futures. Fed cattle ended slightly lower Friday on technical factors and a slightly weaker tone to cash cattle trade throughout the day.
Some analysts suspect that last Thursday's relative high volume of cash trade could result in packers needing fewer cattle this week. If so they would have little buying interest. Prices could face pressure this week from relatively soft demand for new cattle.
Mixed wholesale beef prices have traders pondering whether cash fed cattle and beef prices will be able to maintain themselves going into the holiday.
On Friday front-month December fed cattle fell 15 cents to a composite close of $131.50. Most-active February rose a nickel to $132.95.
Feeder cattle mostly advanced. Most-active January gained 60 cents to $164.72. Composite close on March was up 37 cents at $164.80. Contracts through August advanced.
Bottom line. Slippage in cash fed cattle trade Friday is not constructive. Friday's sharp $2.64 select cutout retreat, driven by ribs collapsing $10.43, is a bit unnerving. Cattle may struggle a bit to start this week.
Cash hogs. Friday's hogs ran steady to $1 lower than Thursday, amid sufficient supplies of heavy-weight hogs in most regions. However, weighted averages advanced as buyers paying in the top end of the base price range bought a larger share of the hogs.
USDA's afternoon reports showed Friday's weighted-average:
* National base price gained 2 cents to $77.89.
* Iowa-Minnesota gained 60 cents to $78.29.
* Western Corn Belt up 36 cents to $78.03.
* Eastern Corn Belt data were not available.
Price changes are compared to USDA's afternoon report for Thursday.
USDA estimated Friday's hog slaughter at 436,000, with Saturday at 143,000. Total for the week of 2.325 million is up from last week's holiday-shortened 2.062 million, but down 38,000 from a year ago. Total so far this year of 103.907 million is down 1.5% from last year.
Data USDA collected under Mandatory Reporting showed Friday's morning plant cutout down $1.85 to $87.48. Afternoon cutout values were:
FOB plant up 99 cents at $90.32.
FOB Omaha up also 99 cents at $89.58.
Based on 312 total loads.
After advancing six straight days and rising $2.08 over that period, the CME two-day lean hog index for Thursday, calculated using USDA data, slipped 45 cents to $82.46. It's still off its recent low of $80.83 on Nov. 25, but remains below its recent peaks of $82.91 on Dec. 4, $91.48 on Oct. 24, $98.25 on Sept. 20 and $102.56 on Aug. 15.
Based on the new cutout Dow Jones estimated Friday's packer margin index at plus $18.57 per head vs. plus $17.26 on Thursday.
Hog futures. Front-month hog futures slid for the fourth consecutive session, hovering near levels for the spot contract last hit eight months ago, amid heavy hog weights and larger-than-expected pork production.
Concerns that the market would face a supply pinch due to death loss from porcine epidemic diarrhea virus underpinned many futures contracts for months. But the lack of confirmation of those losses in December has ushered in heavy selling across the board.
Supply uncertainty exists, but so far PEDV has not disrupted supplies much. If anything heavy weights suggest hogs are backed up resulting in producing too much pork for current demand.
Pork is saturating the current fresh meat and export demand. Surplus pork is moving into cold storage freezers. The market may need a PEDV-induced shortage to pull those supplies out come spring and summer. The second major burst of reported PED virus cases this fall could provide that supply shock.
The composite close on front-month December fell 77 cents to $81.75. February gained 35 cents to $89.02. Friday's action widened the premium of February over December by a dollar.
Bottom line. Big supplies of heavy hogs boost pork tonnage pressuring cutouts. Plenty of pork keeps pressure on hog prices. The $7.27 premium of February over December says cash hogs will advance seasonally. Traders remain mystified as to when the rise will begin.