Written Commentary
CATTLE
The Cattle on Feed Report was considered bearish, particularly for the deferred contracts. August placements at 102.3% of last year were above the average expectation of 99.1% and very close to the upper end of the range. This means larger than expected supply 90-120 days out and is bearish for December and February cattle. These contracts also hold a huge premium to the cash market which adds to the bearish tone. August marketings at 99.6% of last year were below the average expectation of 100% and slightly above the low end of the expected range. This brought the on-feed number as of September 1 to 98.6% of last year versus an average expectation of 98.2% and a range of 97.7%-99.9%. This is somewhat bearish for the October contract. Overall, the report was negative, but more so for the deferred contracts. However, the effect may be mitigated by the fact that futures were down on Friday ahead of the report. The USDA boxed beef cutout closed $2.28 lower at $303.32. This was down from $314.47 the previous week and was the lowest the cutout had been since September 23. No cash cattle trades were reported on Friday. The 5-day, 5-area weighted average price last week was 123.64 versus 123.88 the previous week.
LEAN HOGS
The USDA September 1st Hogs and Pigs report was considered bullish. All hogs and pigs on September 1 came in at 96.1% of last year, which was well below the average trade expectation of 98.3% and even below the bottom end of the range of expectations (97.3%-99.8%). Kept for breeding supply came in at 97.7% of last year, which was below trade expectations of 98.9% of last year and below the range (98.3%-99.7%). Kept for market supply was 95.9% of last year versus an average expectation of 98.2% (97.2%–99.9% range). The pig crop for June-August was 94.0%, which was also below the average expectation and below the low end of the range 96.1% to 97.6%. The report looks quite friendly against trade expectations across the board. Of note is the June-August pig crop (December–February marketings), which came in well below trade expectations and suggest tighter supply into the end of this year and early next year. Given the stiff discount of the futures to the cash market, the report news is especially bullish for February hogs. After choppy and two-sided trade early in the session Friday, October hogs rallied to close higher on the session. February hogs also traded higher on the day after trading to the highest level since September 10. The futures massive discount to the cash market plus some stability in pork values last week may have helped spark some short covering.
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