Lean Hog Fundamental Support: There was quite a reaction to Friday afternoon’s hogs and pigs report (CME:HEN14). Limit up closes were posted for all contracts from August all the way out through the July. USDA’s report on Friday certainly gave the trade quite a bit to talk about. It implied both a poor March/May and the current June/August farrowing. This brought the trade’s estimate of Q4 and Q1 pork production down.
The report actually was not bullish for the July-September period just ahead. It implied hog numbers 4% less than last year. What really got the trade excited today was the word that hog numbers are already tightening down more than USDA’s survey implied. Packers are said to be concerned about next week’s numbers as well. There are a few plants that are considering moving down from an already-low 4 day kill week to now a 3 or 3 1/2 day effort.
This week’s kill will run 8% to 9% less than last year. Don’t forget that the private market is still talking of a 10% yr/yr decline for slaughter in the month of August. If that is the case we can start figuring a $140 target for August futures. If USDA was right then only $130 would be seen.
Live Cattle (CME:LCM14) Fundamental Support: This week may not give either bulls or bears any real test. Midday wholesale beef reported roughly a $1 gain. Asking prices from feedlots have come out $2 to $3 higher than Friday’s trade. This afternoon’s showlist count showed a very large decline of 39,000 head vs. last week (NE -29,000, KS -2,000, CO unch, TX -8,000).
Friday’s tremendous jump in cash cattle trading has not encouraged cattle feeders to bring market ready numbers in. If anything, it encouraged them to hold back even more.
Since this week is a holiday one, we don’t expect major fireworks in cash cattle negotiations. Typically both sides want to get their work wrapped up by Thursday morning. For now, the trade will assume $1 higher trade but there is even a chance the numbers could move at steady prices with last week.
As a reminder, last week’s trade averaged $154.66 through the five areas that trade the vast bulk of the nation’s cattle (seven states). That surpassed the high from March and we are in new record territory. While those heavy winter placements would theoretically give us extra numbers in both June and July, they are not showing up yet. Futures are currently seeing a small setback but they are far from changing the strong trend on the charts.
We are still holding back from sales in this market. However, it is now time to start evaluating the benefits or detractors of various strategies and also doing some clear pencil-work on breakevens of various pens.