Lean Hog (CME:LHV14) Fundamental Support: This is the week that should truly show a clear transition from tight summer supplies to the building winter run. Kill levels should take a sharp jump this week and show increasing numbers until the annual November/December peak. Today’s run came to 375,000 head. This was actually 22,000 head smaller than last week Monday. It was below the average analyst guess of 391,000. While this would seem to counter the rising supplies portion of the discussion it must be pointed out that the real deal on supplies is actually determined by Friday and Saturday.
On the pricing issue, the trade finally saw some stability in futures. The Russian story is still a bearish problem for us but we have had a couple days to trade it already. Combined with the bigger supplies coming seasonally we can suggest bears will be the price makers here for cash markets. On the other hand, futures already have a deep discount. Once August expires on Thursday it is typical for October to see a minor rebound when it takes the lead with such a discount.
This market has fallen below our $104 target price for October futures that was discussed at the AgLeaders Summer Conference. December futures are now under the $92 price discussed. Producers are urged to hold their hedges discussed at the conference. That was a $110 put with a sold $117 call.
Live Cattle (CME:LEV14) Fundamental Support: Today’s showlist count indicated a 19,000 head decline in market ready numbers for cattle to buy this week. While this sounds bullish, keep in mind it comes after a 26,000 head increase last week. Note, this does show clearly we are still more-supplied than in July. We are not going back to $164 cash this summer. For the breakdown we see Nebraska -28,000, no change for Colorado, Kansas +2,000, and Texas +7,000 head.
The trade is likely looking at a steady to $1 lower trade this week. Though the showlist was smaller, we are still seeing pressure in wholesale beef. August futures, when looking at the normal end-of-August basis of -$0.43 are implying a $152 cash trade. Last week’s average cash price was $160. We have to wonder if the current $8 drop that futures are implying will happen in three weeks, and if August futures are undervalued. Prices are now below the price outlooks discussed at the Summer Outlook Conference ($152 – August, $153 – October. $156 – December).