Written Commentary
CATTLE
While the market experienced a recovery bounce yesterday, mainly due to the continued advance in beef prices, traders remain concerned that the heat and dryness in parts of the West could force more animals onto the market or onto feedlots. If the beef market turns down, cash markets are likely to drift lower in the weeks ahead. For now, consider selling rallies. The USDA boxed beef cutout was up $1.74 at mid-session yesterday and closed $2.21 higher at $229.68. This was up from $220.86 the previous week and was the highest the cutout had been since June 12. It also marked the 14th straight session that the cutout has increased, having increased $26.11 since August 5th. Pasture and range conditions in the US have dropped from 52% a year ago (good to excellent condition) to 32% last week and just 24% good to excellent condition this week.
When pasture burns up, producers either move cattle into feedlots or move them to market and this could cause a short-term increase in beef supply. October cattle managed to fill the gap left on Monday morning on the rally yesterday. Strength in the hog market is helping to provide underlying support and the weakness in the US dollar is helping to support a wide range of commodity markets. The USDA estimated cattle slaughter came in at 118,000 head yesterday. This brings the total for the week so far to 235,000 head, up from 232,000 last week at this time but down from 236,000 a year ago. Cash live cattle are trending slightly weaker so far this week. In Kansas on Tuesday, 4176 head traded at $104-$107 and an average price of $105.88, down from $106.02 on Friday. In Texas/Oklahoma, 6098 head traded at an average price of $104.99, down from $106 last week.
HOGS
The market remains in a steady uptrend and experienced the highest close since May 7th. The USDA pork cutout, released after the close yesterday, came in at $74.44, up 51 cents from Monday and up from $73.50 the previous week and a year ago. This is the first time the cutout is above year-ago levels since May 30. Packer margins are in the black and this could temporarily support cash markets. However, the steady flow of market-ready hogs into the fall could help pressure pork values soon. October hogs closed sharply higher on the session yesterday as traders reacted to supportive demand news. Trade frictions with China eased with news of a positive conference call with trade officials on the Phase 1 trade deal with China.
Aggressive buying of pork from China in July and news of tighter cold storage stocks than traders expected were also seen as positive forces. The CME lean index as of Aug 21 was 56.06, up from 55.51 the previous session and 54.47 a week before. The USDA estimated hog slaughter came in at 484,000 head yesterday. This brings the total for the week so far to 953,000 head, down from 963,000 last week at this time but up from 938,000 a year ago. China’s national average spot pig price as of August 26 was down 0.61% from the previous day. For the week prices are up 0.16%, down 1.44% for the month and up 9.28% year to date and up 40.37% versus a year ago.
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