Livestock Call by John Otte

Beef and pork markets diverge as beef cutouts rise, while pork cutouts slip; Cattle on Feed Report should give insight on summer beef supply

Published on: Apr 23, 2014

April 23, 2014

Opens
Fed cattle
, lower
Feeder cattle, steady
Lean hogs, steady to lower

Stock futures trading just on the positive side of steady overnight suggests Wall Street could build on Tuesday's gains that were fueled by mergers and earnings.

Overnight livestock trade points lower in fed cattle, steady in feeders and steady to lower in hogs.

Cash fed cattle. USDA reported negotiated cash trade was at a standstill on Tuesday.

Nebraska feedlots responding to a Dow Jones survey report offering 15,000 more cattle than last week. Colorado show lists are up 5,000 from last week. Kansas offerings are up 1,000. Texas show lists are down 8,000 from last week. That nets out to 13,000 more cattle on this week's show lists in the four states, which were up 13,000 from the previous week.

Despite higher show lists, rising wholesale beef cutout values seem likely to encourage feed lots to ask higher prices for cash cattle this week.

The bulk of last week's trade occurred at slightly lower prices than the prior week, as market participants braced for cattle numbers to expand in the weeks ahead.

Friday trading in the Texas Panhandle was slow on light demand. In Kansas trading and demand were moderate. For the week live sales sold $1 lower at $147 in both regions. Nebraska saw moderate trading and demand Friday. For the week live and dressed sales sold mostly steady with live sales from $150 to $151.50 and dressed sales at $240. In Colorado on Friday trading was slow on light demand. For the week live sales sold unevenly steady from $151 to $151.50. In the Western Corn Belt on Friday trading was slow on moderate demand. For the week live sales sold unevenly steady mostly at $150. Dressed sales sold steady to $1 higher at $240.

Tuesday's morning choice boxed beef cutout was up $2.26 at $231.32, with select up $1.23 at $219.30. Afternoon cutouts were higher on moderate to fairly good demand and light offerings. Choice was up $2.15 at $231.21, with select up $1.55 at $219.62 on 118 loads.

USDA estimated Tuesday's cattle slaughter at 116,000. Slaughter so far this week of 219,000 is down 14,000 from last week and down 25,000 from last year.

Cattle futures. Fed cattle extended gains through Tuesday's settlement, as rising wholesale beef prices fueled expectations for retail demand to continue to strengthen as retailers stock up for grilling season.

Expectations that grilling season will support beef demand is underpinning cattle prices. So far this week choice cutout has advanced $4.86, with select up $4.39.

Meanwhile, beef exports so far this year have risen above year-ago levels by sales and volume, despite record-high wholesale prices. In 2014's first two months the U.S. shipped $878 million worth of beef, up 15% from the same period in 2013, according to the U.S. Meat Export Federation.

April fed cattle rose 25 cents to $143.70. Most-active June gained 42 cents to $134.97.

May feeder cattle rose 25 cents to $178.35. August gained 37 cents to $182.27.

Thus far the CME has listed no tender notices to deliver on the soon-to-expire April fed cattle contract. With April futures $5 to$7 below cash trade, no deliveries are likely.

Cattle on feed pre-report guesses. Round figures, feedlot placements have been up about 600,000 since weaning time compared to a year ago. That suggests a potential bulge in summer fed cattle supply. Traders will get clues on how large that bulge might be in Friday's USDA Cattle on Feed Report. On average, analysts responding to a Wall Street Journal survey expect:

Cattle on feed April 1 to be 100.4% of April 1, 2013, in a range of 99.0% to 101.4%.

March placements at 101.7% of last year, in a range of 95.3% to 104.3%.

March marketings at 96.6% of last year, in a range of 95.0% to 100.5%.

Bottom line. Despite higher show lists, rising wholesale beef cutout values seem likely to encourage feed lots to ask higher prices for cash cattle this week. Friday's Cattle on Feed Report should provide insight into cash fed cattle supplies and potential prices going into summer.

Livestock Call by John Otte

Cash hogs. Compared to Monday, on a plant by plant basis, Tuesday's weighted average base prices were unchanged to $4.08 lower. The range was $105 to $117.50. The market trend was not well established on slow market activity with light demand.

Buyers paying in the top end of the base price bought the bulk of the hogs.

USDA's afternoon reports showed Tuesday's weighted-average:

* National base price up $1.97 at $115.02.

* Iowa-Minnesota up 10 cents $115.83.

* Western Corn Belt down 28 cents at $115.13.

* Eastern Corn Belt was not available.

Price changes are compared to USDA's afternoon report for Monday.

USDA estimated Tuesday's hog slaughter at 411,000. Slaughter so far this week of 684,000 is down 108,000 from last week and down 152,000 from last year. Some plants were closed Monday this week in observance of Easter.

USDA reported Tuesday's morning plant cutout down $1.26 at $117.21. Afternoon cutout values were:

FOB plant down $2.33 at $117.09.

FOB Omaha down $2.40 at $116.07.

Based on 324 total loads.

Slipping cutouts erode margins. Based on the new cutout Dow Jones estimated Tuesday's packer margin index at minus $3.10 per head vs. plus $1.03 Monday.

Monday's CME two-day lean hog index slipped for a thirteenth straight day, sliding $1.17 to $118.48. Its recent peaks are $130.35 on April 2, $81.05 on Jan.10, $82.91 on Dec. 4, $91.48 on Oct. 24, $98.25 on Sept. 20 and $102.56 on Aug. 15. Recent lows are $79.91 on Jan. 20, $79.23 on Dec. 23 and $80.83 on Nov. 25.

On Tuesday, USDA reported end of March pork cold storage stocks at 575.2 million pounds, down 12% from a month earlier and smaller than analyst expectations. Traders expected stocks to be about 629.8 million pounds. Stocks dipped in the face of near-record wholesale prices.

Hog futures. Hogs ended higher Tuesday, supported by buying across livestock markets.

Trade chatter hints supplies may be adequate for the near term. Slaughter weights recently rising to record levels have held production higher than had been expected, which curbed gains in the front-month contract.

USDA reported the average hog weights for the week ended April 12 at 285.7 pounds, up 3.3% from this time last year.

On Tuesday, most-active June hogs gained 90 cents to $123.25. July advanced 50 cents to $121.00.

Bottom line. Slumping wholesale pork cutouts will eventually drag cash hogs and futures lower, or wholesale prices will have to turn higher.

The opinions of John Otte are not necessarily those of FarmProgress.com, Farm Futures.com, or the Penton Farm Progress Group.