Written Commentary
CATTLE
Without help from the beef market, the cash market may continue to drift lower and this will leave the futures market vulnerable to a setback with the premium structure still intact. Feedlots appear current with marketing’s but cash markets continue to drift lower, trading mostly $122 this week after some $124 trade on Monday and last week. The USDA boxed beef cutout was down 32 cents at mid-session yesterday and closed $1.47 lower at $287.71 and the lowest the cutout had been since August 3. Cash live cattle are trading at decent volume for this early in the week with prices trending at 122, which is low end of last week’s range. In Kansas, 751 head traded at 122 on Tuesday after 283 traded at 124 on Monday. The average last week was 122.79. In Nebraska 1,648 head traded at 122 on Monday, and another 277 traded there on Tuesday. The average last week was 122.14. December cattle closed slightly lower on the session yesterday after choppy and two-sided trade. The buying pushed the market up to the highest level since September 27.
The technical action remains positive, but the market will need to see fundamental reasons to justify Monday’s surge higher. December cattle is holding a good premium to the cash market. The five-year average basis is near December holding a $4.00 premium to the cash market so the current set-up is near normal. The USDA estimated cattle slaughter came in at 122,000 head yesterday. This brings the total for the week so far to 242,000 head, up from 236,000 last week and 236,000 a year ago. For the month of August, US beef exports reached 116 million tons, up from 107 million in July and up 21.1% from last year. Technically, the market seems to have rejected the idea of trading below $125 for the December contract.
LEAN HOGS
If pork values turn down, cash markets could drift lower as slaughter supply increases seasonally in the next six weeks. The market is technically overbought and vulnerable to a downside correction. However, the downside could be limited as the market already holds a stiff discount to the cash market. The USDA pork cutout, released after the close yesterday, came in at $106.65, down from $110.54 on Monday and $107.24 the previous week. This was the lowest the cutout had been since September 23. December hogs opened higher but closed moderately lower on the session yesterday. The selling pushed the market to a five day low. US monthly pork exports for August reached just 525.9 million pounds, down less than 1% from last year, and well off of the peak from March of 728.8 million pounds.
Monthly exports represented just 23.7% of total production as compared with 33% in May 2021. Exports to China were only 57.6 million pounds this is down from near 160 million earlier this year and down from the record high 253.3 million pounds in May 2020. It is the lowest monthly export to China since mid-2019. Exports to South Korea were near a five-year low and Canada was sluggish as well but Mexico reached a new monthly record of 187.9 million pounds. The CME Lean Hog Index as of October 1 was 94.05 up from 93.39 the previous session and 91.51 a week prior. The USDA estimated hog slaughter came in at 476,000 head yesterday. This brings the total for the week so far to 940,000 head, down from 949,000 last week and 974,000 a year ago.
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