Written Commentary
CATTLE
The technical action is bearish with an outside day down for December cattle. Traders see the larger than expected placements for the month of August as a bearish force, and December and February cattle hold a huge premium to the cash market. Beef prices remain historically high for this time of the year and have drifted down to near $302.70 from near $210 for each of the last two years during October. Some traders see the high price as a reason to expect lower demand which could cause higher weights, and take away some of the tightness expected into the fourth quarter. Weights have increased recently, but remain well below last year and the five-year average. The USDA boxed beef cutout closed 62 cents lower at $302.70. This was down from $315.66 the previous week. This was the lowest the cutout had been since August 9. Cash live cattle were quiet on Monday.
LEAN HOGS
The market is making a quick adjustment in pricing as supply is well below trade expectations and futures hold a huge discount to the cash market. February hogs closed up the 475 point limit on the day as the much smaller than expected June-August pig crop helped to spark aggressive buying. The pig crop for June-August was 94.0%, which was well below the average expectation and below the low end of the range 96.1% to 97.6%. The June-August pig crop represents market animals for the December–February time frame. The market gapped higher from the bullish USDA hogs and pigs report and managed to close on the high. February hogs normally trade near a $3.34 premium to the cash market at this time of the year but even after the limit-up advance, closed at a $7.05 discount to the cash. This added to the positive tone from the report.
The USDA pork cutout, released after the close yesterday, came in at $110.37, up from $109.14 on Friday and $101.36 the previous week. This was the highest the cutout had been since August 27. The CME Lean Hog Index as of September 23 was 91.47, down from 91.89 the previous session and 94.26 a week prior. The USDA estimated hog slaughter came in at 478,000 head yesterday. This was up from 463,000 last week but down from 490,000 a year ago.
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