Hogs: Tuesday we discussed that hog slaughter is running under USDA’s Hogs and Pigs estimate. The Sept. 1 to mid-October kill should be around 3.5% smaller than last year. It has actually run a large 6.9% under last year including this week. While this comparison with USDA’s pace is a valid concern for us right now (bullish), we must also point out that slaughter is at least rising. Last Saturday’s kill ran 55,000 head. This coming Saturday will run from 115,000 to 135,000. Next Saturday will likely be up to 180,000. There is some weakening to be expected here on the wholesale end.
We also have a seasonal issue to discuss. Allendale’s index of historical December contracts shows Oct. 13 is a key point that starts a slide down into Oct. 25. There is a good chance we have just started that seasonal slump.
We have said before that if USDA was correct on its winter supply estimate, which is still not entirely set yet, then December hogs would run 82.00 to 84.00. We feel more confident that a short-term break could be seen but are not confident enough to use straight futures. A good compromise is to sell December 87 calls.
Cattle: South Korea’s announcement that it had suspended beef purchases from one US beef plant may not have been the major issue here, but it added onto a growing discussion about demand.
For the statistics, South Korea took only 7% of our exports in the most recent month available. Because this is a limited suspension, and only from one plant, we cannot even write off a 10% decline in exports for the country. In fact, a 5% decline from this story is likely a little much. That would bring the impact to total beef exports at 0.35%.
In our opinion the bigger issue here is the impact on demand due to the government shutdown. This is now week number two of the shutdown and many government employees who run paycheck to paycheck may be cutting back on purchases now.