Written Commentary
HOGS
The hook reversal for October hogs after trading to the highest level since May 7th could be a sign of a short-term peak. October hogs rallied to a new high for the move early in the session yesterday but closed moderately lower with an outside-day. Average weights remain high and traders are nervous over the ability of the hog market to absorb increasing supply into the fall. The average hog weight for Iowa-Southern Minnesota as of August 22 was 279.0 pounds, down from 279.3 pounds the previous week and up from 277.4 a year ago. Weights have a tendency to bottom around this time of year. The USDA pork cutout, released after the close yesterday, came in at $70.88, down $3.56 from Tuesday and down from $73.79 the previous week. This is the lowest the cutout has been since August 11.
Slaughter should remain above year ago levels into September and October, and last year’s slaughter levels were already at a record high. As a result, it will be important to see very active exports in the weeks ahead. The CME lean index as of Aug 24 was 56.60, up from 56.06 the previous session and 54.81 a week before. The USDA estimated hog slaughter came in at 482,000 head yesterday. This brings the total for the week so far to 1.435 million head, down from 1.439 million last week at this time but up from 1.427 million a year ago.
CATTLE
While the beef market remains in a steep uptrend, the outlook for increasing supply plus the weakening cash market tone are factors which have led to more aggressive selling in the cattle market. Traders also see feedlots nearly full, and a large supply of feeder cattle available to move onto feedlots as a bearish set up. Feeder cattle imports from Mexico are also on the rise. The industry saw heavy placements of lighter weight cattle early in the year and then heavier weight cattle were placed in July so the production outlook is bearish. Once slaughter picks up steam, the heavier weights will just add to the tonnage on the market. The USDA boxed beef cutout was up $1.63 at mid-session yesterday and closed $1.77 higher at $231.45. This was up from $223.04 the previous week and was the highest the cutout has been since June 11. The cutout has increased for 15 days in a row.
Cash live cattle are continuing their pattern of lower prices this week. In Kansas 5,123 head traded at $103-$106 and an average price of $105.03, down from $106.02 last week. In Nebraska, 10,366 head traded at $104-$106 and an average price of $104.95, down from $106 last week. If beef prices come under pressure, cash markets might begin to push lower. Feeder cattle also looks vulnerable to a sharp break as feedlots are already nearing capacity and there may be an abundant supply of feeder cattle ready for market into the fall. The USDA estimated cattle slaughter came in at 118,000 head yesterday. This brings the total for the week so far to 353,000 head, up from 351,000 last week at this time but unchanged from a year ago.
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