Written Commentary
CATTLE FUTURES
With the overbought condition, high open interest, increasing consumer demand fears and somewhat ample short-term supply, the market looks vulnerable to a short-term correction. The USDA boxed beef cutout was down $2.46 at mid-session yesterday and closed $3.19 lower at $253.47. This was down from $261.34 the previous week and was the lowest the cutout had been since March 9th. While the supply fundamentals slowly tighten into the fourth quarter, short-term supply may be enough to meet demand. In fact, slaughter for the last three weeks has been up 4.3% from last year, up 2.7% and up 3.9% from last year. Cash live cattle traded in light volume on Wednesday at prices slightly lower than last week. In Iowa/Minnesota there were 2,665 head reported at $143-$144 with an average of $143.33 versus an average $144.14 last week.
HOG FUTURES
December hogs recovered a little more than half of the August 16 to September 9 break in just a few days. The decline in open interest suggests part of the strength has been short covering. Some stability in pork cutout values might help stabilize the cash market at least temporarily, and this may leave December hogs looking a bit undervalued. Traders continue to price in a much larger than normal break for the cash market into the fourth quarter. The USDA pork cutout, released after the close yesterday, came in at $105.02, up from $103.84 on Tuesday and $101.48 the previous week. This was the highest the cutout had been since August 22. After a lower opening, December hogs traded higher on the session and the buying pushed the market up to the highest level since August 23rd but the market closed lower on the day. The short term cash news is not necessarily supportive, but the market has seen solid gains in the last few sessions as the basis level continues to correct. The CME Lean Hog Index as of September 12 was 97.67, down from 98.29 the previous session and 103.26 the previous week.
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