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Livestock Call By John Otte

Soft demand, technical selling sink beef, intended farrowing cuts may not materialize.

Published on: Apr 16, 2014

April 2, 2012
Opens
Fed Cattle,
 steady to higher
Feeder Cattle, steady to lower
Lean Hogs, lower

Larger near-term supplies could weigh on hog futures this morning. Rising grain prices in overnight trade could pressure feeder cattle, but provide support to fed cattle. The logic, higher feed costs reduce feedlots' ability to bid for feeders while simultaneously potentially tightening fed beef supply.

Hogs and Pigs Report. USDA delivered confirming evidence for both bears and bulls Friday. The 64.872 million head all hogs and pigs inventory was up 1.9% from March 1, 2011. The average trade guess was up 1.7%.

The breeding inventory, at 5.82 million head, was up 0.6% from a year earlier. Analysts surveyed by Dow Jones Newswires on average had expected the USDA to report about 5.805 million head.   

The 2.9% larger than a year ago December-February pig crop is also a bit bearish. Pigs per litter, up 1.7% from last year, were in line with expectations. But the 1.2% rise in sow farrowings during the quarter was substantially more than the expected 0.7% hike.

The survey indicated that producers do not plan to boost farrowings in the next two quarters. On the surface, that's bullish. However, traders may be skeptical on whether no growth will occur, given the larger sow herd, estimated current profits despite relatively high feed costs and expectations that new crop corn may come available at lower prices. Cutout weakness thus far this year and signs of potential soft domestic and export demand may force producers to hold the line on farrowing expansions.

Farrowing plans are not as firm as head counts of pigs on the ground. Traders may well focus on larger supplies today rather than expectations of slower growth later in the year.

Cash fed cattle. Other than an additional isolated sale or two in Kansas Friday, the Plains and Midwest cash cattle markets were quiet. Further declines in futures prices likely contributed to the light sales in Kansas at $123.50 to $124 live, down from the majority of trades Thursday at $125.

Most sales in Texas and Oklahoma on Thursday were at $125 as well, down $1 from the bulk of the previous week's trading. Volumes for the week were estimated at about 18,000 head in Texas/western Oklahoma and around 26,000 in Kansas.

Nebraska sales for the week were from $1 to $2 lower. Dressed sales were at mostly $202, with a few up to $204. Live sales were from $126 to mostly $127. Volume for the week in Nebraska was estimated at 42,000 head.

At midday Choice was up 35 cents after falling for eight consecutive days and in 16 of the last 17 days. Select beef was up 3 cents. Friday afternoon boxed beef cutout values were steady to weak on light demand and offerings. Choice fell 9 cents to $183.37. Select slipped 72 cents to $182. Load count totaled 161.

USDA estimated Friday's cattle slaughter at 106,000, with Saturday at 5,000. The 602,000 weekly total matches the previous week, but is down from 640,000 a year ago. The 7.888 million cattle slaughtered so far this year are down 5.1% from last year.

The latest HedgersEdge packer margin index was minus $109.25 per head, compared with minus $101.00 the previous day. The weekly average was minus $89.60. The latest index approached the record low of minus $112.10 hit in mid December. The deeply negative margins and sluggish demand for beef caused processors to again operate at reduced levels last week.

 

Cash feeder cattle. Compared to the previous week, last week's feeder and stocker cattle trends across the nation were largely steady to $4 higher. However distinct exceptions were on heavy yearling feeders weighing over 850 lbs., which were steady to $3 lower and lightweight stocker calves near the major grazing regions of the central U.S., which sold from $4 to $8 higher and instances as much as $12 higher, especially on heifers.

Granted, much of this business was done early and before the three sharply lower CME cattle futures trading sessions ended the week and long before the USDA's estimated lower-than-expected quarterly grain stocks rallied the grain market and the higher-than-expected prospective corn plantings was ignored by Chicago.

Farmers are now expected to plant 95.9 million acres of corn, which is 1.9 million more acres than the previous estimate, 1.2 million more than the average of analysts' guesses and the highest acreage level of corn planted since 1937. Nevertheless, CBOT May corn contracts closed up the 40-cent limit on Friday at $6.44/bu as the report also included quarterly corn stockpiles of only 6.01 billion bushels, which was 8% less than the same time last year.

This week's cash feeder cattle market will undoubtedly feel pressure from higher feed costs and losses on the Board. But, this past week responded mostly higher following the widespread rains throughout the Plains and the Midwest and the continued unseasonably warm early spring that has pastures looking more like mid-May than late-March.

Trading was active on Tuesday at the Ozarks Regional Stockyard in West Plains, Missouri which is only slightly more than a stone's throw from Arkansas. A 121 head string of 604 lb. black-hided steers with an attractively empty or gaunt weighing condition received the premium price of $187. Two loads of fancy Red Angus steers were also featured, averaging 806 lbs at $152.75 and at least $3 to $4 cwt freight from the nearest major feed yard.

Last week's auction receipts were respectable, but were still more than 10% lighter than a year ago and cash feeder cattle buyers know that offerings will soon dry-up.

Cattle futures.  Fed cattle ended lower Friday as the market disregarded soaring grain prices amid weak beef prices and speculative selling.

Speculative fund liquidation, prompted in part by the market's negative technical trend, weighed on prices Friday. Spot-month live cattle prices hit a fresh 2 1/2-month low for the second day in a row.

Weak beef prices and sluggish demand in the face of high gasoline prices have been weighing on the market. The controversy over lean finely textured beef, a ground beef filler dubbed "pink slime" by critics, has also weighed on beef demand and prices recently, according to some analysts.

Cattle prices fell despite a sharp rally in grain prices off USDA's Grain Stocks and Prospective Plantings Reports Friday morning. The higher grain prices mean higher costs for livestock producers and are usually considered supportive to live cattle in particular.

Traders said both cattle and hogs are oversold and could see a seasonal pickup in demand soon.

April fed cattle fell $2.05 to $120.45. Remaining contracts through April 2013 all lost at least $95 cents.

Feeder cattle plummeted as soaring grain prices upped feeding costs. All contracts through November 2012 retreated at least $1.25. May was the big loser, down $2.70 at $149.12

Cash hogs. Predictions for prices today are steady to lower.

Processors have sufficient supplies of hogs through the middle of this week or beyond. Slaughter schedules will be disrupted this Friday and next Monday as some plants will take a day off in observance of the Easter holiday. On Good Friday last year, hog slaughter was reported at just over 365,000 head and on the Monday after Easter at about 273,000 head. Similar levels are expected this year.

Some plants may boost their daily slaughters a bit next week to make up for downtime surrounding the Easter holiday or due to expectations of improved demand for the pork into the new month. Grilling activity is expected to increase then as well with the arrival of warmer spring temperatures.

Friday's cutout advanced 46 cents to $79.97. Load count totaled 31. Friday's cutout ended 30 cents above the Friday March 23 value.

USDA's afternoon reports showed Friday's:

* Iowa-Minnesota hogs climbed $1.27 to average $80.75.

* Western Corn Belt hogs slid 12 cents to average $80.22.

* Eastern Corn Belt hogs slipped 15 cents to average $77.14

Price changes are compared to USDA's prior day report for Thursday.

USDA estimated Friday's hog slaughter at 409,000, with Saturday at 56,000. The 2.113 million hogs slaughtered for the week are down from 2.132 million the previous week and 2.117 million a year ago. The 27.881 million hogs slaughtered so far this year are up 0.6% from last year.

Dow-Jones estimated Friday's packer margin at minus $5.50 per head, compared with minus $6.80 per head Thursday.

Hog futures. Hogs ended mostly higher in a modest rebound as traders awaited Friday afternoon's hogs-and-pigs report.

April ended up 25 cents to $83.275. The market had fallen to a fresh 2 1/2-month low on Thursday.