Lean Hog Fundamental Support
Smithfield Foods had some unidentified problems at the nation's largest kill plant in Tar Heel, NC. That brought the kill down from an expected 436,000 to 424,000. There may be another slight revision to Monday's kill on tomorrow's report. Aside from that issue much of the fundamental picture was mixed today.
There is still an issue with the cash pork/cash hog pricing right now. Though pork may have bottomed for the short term, cash hogs certainly have not. The industry notes that aside from the holiday issue next week we should see continued increases in weekly supplies through late November. Packers are buying for a reduced kill week up ahead and certainly won't feel a need to reach out and go after numbers this week.
Though this market didn't quite trade the seasonal path in the past few weeks we have to wonder if it will in the next few. This recent move down is actually not that out of line for seasonals. It is just that this move would normally not happen until later on in August. After that late August low, August 28 to be exact, a strong rally is seen. For the October contract there is no going back to that low. For the December contract we typically rally strong until September 15 then decline back down.
Live Cattle Fundamental Support
At the afternoon meeting with the brokers, which is also available for subscribers to access on our website, Paul Georgy added one more thing to our bearish parade here. The new month is ready to start soon. That will also add in the availability of contracted cattle for packers to draw from. This comes on top of our arguments about September supply and lower demand for the post-holiday period.
At the meeting we detailed the idea that kills will likely push to 621,000 head in the week ending September 17. That would be over last week's 600,000 and the current summer peak of 608,000.
Futures are now pricing this market as though cash will fall from last week's $115 average down to $106 and stay there the remainder of the year. Our outlook, updated in July, calls for a cash cattle low of $110 then a rebound up to $114. We feel a strong confidence in the September/early October supply outlook but are not so sure about the numbers set for November/early December. We still plan to buy this market in September at the worst of supplies but are not sure how much upside is in store.
The Federal Reserve's chairperson, Janet Yellen, indicated her view that the US economy has strengthened in recent months and that the case for a rate increase has also increased. Though she was not specific the trade took this as news that the Fed would likely increase rates at the December Federal Open Market Committee meeting. Though interest rates are not a big driver of cattle prices, the focus on the US economy and consumer health is (beef demand).
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