December 11, 2013
Fed cattle, higher
Feeder cattle, higher
Lean hogs, steady to higher
Wall Street may slip further today as investors ponder news of a U.S. budget deal that could encourage the Federal Reserve to begin easing back on easy money policy.
Tuesday's USDA supply report pegged the U.S. ending stocks for corn at 1.792 billion bushels; wheat at 575 million bushels and soybeans at 150 million bushels. USDA does not forecast grain or soybean production in December so no changes occurred in those numbers.
Corn futures slipped after starting the session with upside and then turning negative after the USDA report. The good news for corn futures was their ability to bounce well off the session lows. The good news for livestock producers is upside in feed costs appears limited.
Livestock mostly advanced overnight. A key exception was front month December hogs, which traded lower, likely facing drag from weakening Cash hogs.
Cash fed cattle. On Tuesday USDA reported negotiated cash trade was mostly inactive on light demand in all feeding regions.
Last week beef processors bought large volumes at prices steady to a $1 weaker. No new trade seems likely until this afternoon, or later this week.
This week's show lists are up a net 31,000 from last week in Texas, Nebraska, Kansas and Colorado, which could weigh on cash prices. However, last week's show lists were down 39,000 from the previous week.
Tuesday's morning cutouts were mixed with choice down 20 cents and select up 84 cents. Afternoon cutout values were steady to weak on light demand and light to moderate offerings. Choice was down 40 cents at $202.12 with select off 11 cents at $188.01. Load count totaled 198.
USDA estimated Tuesday's cattle slaughter at 120,000. Total so far this week of 239,000 is, up 1,000 from last week but down 14,000 from a year ago.
Cattle futures. Fed cattle ended mixed Tuesday, trimming earlier losses as projected costs for corn and soybeans cooled, raising expectations for prices some owners may be willing to pay for young cattle.
December live-cattle advanced 7 cents to a pit close of $131.67. February slid 40 cents to $132.65.
Feeder cattle mostly advanced. Most-active January gained 40 cents to $165.55. Pit close on March was up 7 cents at $165.47. April and May rose. August slipped 12 cents to $167.77.
The CME listed no tender notices to deliver on the expiring December fed cattle contract yesterday.
Bottom line. Larger show lists and stagnant or slipping wholesale beef cutout values are a bit concerning. USDA confirming big grain supplies is constructive in that no big surge in feed costs looms on the horizon.
Cash hogs. Cautious hog buyers bid steady to $1 lower Tuesday. Packer interest in buying hogs has eased as some plants have already booked the bulk of the hogs they need for the week.
Light snows overnight in some parts of the Corn Belt may make slippery spots. Moderating temperatures ease producers' fears about shipping hogs in extreme cold.
USDA's afternoon reports showed Tuesday's weighted-average:
* National base price fell 90 cents to $77.69.
* Iowa-Minnesota fell $1.86 to $77.56.
* Western Corn Belt slid $1.56 to $77.46.
* Eastern Corn Belt was down 62 cents at $77.76.
Price changes are compared to USDA's afternoon report for Monday.
USDA reported last week's Iowa-southern Minnesota barrows and gilts averaged 282.4 pounds, up from 281.7 pounds the previous week and well above the 274.9-pound average a year ago.
USDA estimated Tuesday's hog slaughter at 436,000, Total so far this week of 871,000 is down 9,000 from last week, but up 13,000 from a year ago.
Tuesday's afternoon Omaha cutout value was up 61 cents at $90.22.
After advancing six straight days and rising $2.08 over that period, the CME two-day lean hog index, calculated using USDA data, slipped Monday for a third day. It dipped 29 cents to $81.69. It's still off its recent low of $80.83 on Nov. 25, but remains below its recent peaks of $82.91 on Dec. 4, $91.48 on Oct. 24, $98.25 on Sept. 20 and $102.56 on Aug. 15.
Based on the new cutout Dow Jones estimated Tuesday's packer margin index at plus $21.03 per head vs. plus $20.77 on Monday.
Hog futures. December hogs extended their recent slump to six consecutive days, tumbling to the lowest levels in eight months for the spot contract amid record heavy hog weights.
Heavy hog weights and larger-than-expected pork production have weighed on prices over the past few weeks, during a time when some analysts expected that meat processors could be facing a shortage due to earlier baby pig losses due to porcine epidemic diarrhea virus.
Many market watchers believed the market would begin to see smaller slaughter runs due to PEDV in December. The lack of confirmation has ushered in heavy liquidation of long positions, leading to further technical selling as prices fell below recent lows early Tuesday.
Meanwhile, big enough slaughter runs of heavyweight hogs are keeping production well above expectations.
Futures are also weighed down by weakness in recent negotiated cash trade, which has trended lower over the past week. December hogs at $80.82 are at a modest 87 cent discount to Monday's lean hog index at $81.69. That gap will close before December expires.
Despite recent slippage in the index, some analysts contend retail demand is strong enough to pork at these prices to absorb the extra pork at near current prices.
December slid 55 cents to a pit close of $80.82, the lowest price for the spot contract since April 9 and lowest in that contract's life since August 2. Most-active February was the big loser, down $1.12 to $88.72.
Bottom line. Despite plenty of heavy hogs and slipping cash and futures prices, some traders sense that demand is better than what some people had expected in both our domestic and export markets. The bottom could be near.