This week’s slaughter mix will be a hard one to figure out. We have the J.H. Rooth plant down today, out of Sandusky, Ohio, and five plants closed on Friday. This will lower Friday’s kill by 70,000 – 85,000 head from the normal level. Technically you could say this reduced slaughter supply may be suggesting some moderate porcine epidemic diarrhea (PED) impact.
It certainly is not the 10% reduction in slaughter that the trade expects to see in July/August. A bigger issue though is packer procurement willingness. Despite some gains in cash pork recently, no one is stretching out for hogs (CME:HEN14). As a whole, packers are running lower kill rates rather than compete for numbers. We wonder if this same action will be seen when we get into the thick of the PED slaughter period ahead. For now though, it is disappointing to futures.
With premiums already in the next two contracts out, and no knowledge of how bad the slaughter period ahead will be, this is enough of a premium. We do see prices returning to $130 but don’t expect that move to happen this month. Last issue to note is that much of the pork industry is at the World Pork Expo this week. That may keep trading volume limited.
Futures spent the day on both sides of even today. Traders are feeling that summer futures have done a good enough job in narrowing their discount to cash. June futures are implying cash cattle (CME:LEM14) will end June at $138. This current price range fits in with our revised price target of $137 – $139.
August futures are implying an end of August cash price of $139/$140. That may be a tough issue to reconcile. On the bearish end there will be a point where feedlots have to end their delayed marketing practices. In either July or August we can expect a washout in cash prices. On the bullish end the later August period should mark the separation from heavy summer supplies and tightened fall numbers.
Our concern is that August will be a ripe target for bears once we move out of the month of June. As to the marketing issue this week will mark week number five. The past four of those five weeks will be characterized by sharp restrictions. On the feeder cattle (CME:GFQ13) futures came close to hitting everyone’s $200 per cwt target. Even new lows for corn futures were not able to support them that much. We see feeder prices remaining up at this level while grass based backgrounders compete for those numbers this month.