Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $132.11 - .28*
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 77.76 - .36**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Cattle market watchers put in plenty of overtime last week but were ultimately rewarded by greater packer spending late Friday. Such success will no doubt encourage feedlot managers to price ready cattle several dollars higher this week. Activity Monday will be limited to the collection of new showlists. We expect the new offering to be somewhat larger than last week. Live and feeder futures are expected to open on a firm basis, boosted by residual selling interest and higher cash sales.
The cash hog trade should open this market with steady/firm bids. The impressive recovery seen last week is expected to continue, at least for a bit longer. Processing margins remain excellent, and early October numbers seem more manageable. Lean futures should open on a mixed basis with nearby contracts losing ground to deferred.
|BULL SIDE||BEAR SIDE|
|1)||Beef-packer spending definitely strengthened late Friday, writing live checks for $1 more in the South ($109) and $2 more in the North ($110). Despite plentiful meat supplies, feedlot leverage continues to improve this fall.||1)||Big beef supplies will remain the theme for the coming months. Placements were very active during the spring and summer and those cattle still need to be marketed.|
|2)||August beef exports totaled 112,069 metric tons, up 5% from a year ago and the largest of 2017. Export value was the second highest on record at $679.1 million, up 20% from a year ago and trailing only the record-high value ($688.8 million) reached in October 2014.||2)||The weak basis and wide premium in December live cattle futures may lead some feedlot managers to slow their marketing rates, particularly if the cash market does not continue to firm.|
|3)||In the reporting week ending Oct. 3, noncommercial traders were net buyers in the lean hog market, increasing their net-long position by 13,300 contracts to 38,600.||3)||Bumping its head on the 40-day moving average, soon-to-expire October lean hog futures closed under psychologically-supported 60 on Friday. Furthermore, the $4 plus discount of the cash index could be a further drag through Friday.|
|4)||This is evident of very strong seasonal pork demand, even if product prices did not rally that much last week. It is difficult to move these record levels of hogs and pork without significant discounting, and apparently the significant discounting already in place is helping to move it all.||4)||Pork exports totaled 183,658 metric tons in August, down 2% from 2016, valued at $511.4 million, down 0.3%.|
HOGS: (iowafarmerMonday.com) -- The U.S. pork industry continues to grow at a measured pace.
The Sept. 28 USDA Hogs and Pigs report indicated a 2.5 percent increase in the nation's inventory from a year ago, with the breeding herd number up 1.2 percent and kept for marketing numbers up 2.6 percent.
Those numbers were pretty close to pre-report estimates, says Ron Plain, Extension livestock economist with the University of Missouri. He says the report shows the pork industry is doing well, and should remain profitable through at least 2018.
Plain was one of three analysts who participated in a Sept. 28 conference call sponsored by the National Pork Board.
One number that was surprising was the June-August farrowing intentions figure, which came in at 1.5 percent.
"That would be the 12th time in the last 13 quarters that the number will be higher than expectations," Plain says. "It shows the industry has recovered from PED more quickly than we thought, and that we continue to do very well on breeding and reproduction."
Disease issues in Manitoba continue to impact feeder pig numbers heading south, says Kevin Grier, a market analyst from Guelph, Ontario. That in turn impacts hog numbers in the Iowa and Southern Minnesota markets, he says.
Grier says about 10,000 fewer pigs per week were heading south out of the Canadian province, but says producers seem to be winning the battle with PED.
Since the report came close to pre-release estimates, price forecasts for the next year remain virtually unchanged.
Plain expects fourth-quarter pigs to average in the $50-54 per hundredweight range on a lean basis, with first-quarter prices from $58 to $62, second-quarter prices from $68 to $72, and third-quarter prices averaging between $67 and $71.
Grier says he is a bit more bullish, with most prices about $2 more than Plain's forecast.
Plain says with inexpensive feed and optimism in the futures market, 2017 and 2018 should both be profitable.
"We are in a pattern where we make money in the spring and summer, and that looks to be similar for next year," he says.
Along with feed costs, added packing capacity has helped continue to fuel expansion. Plants in Sioux City and Coldwater, Mich., both opened earlier in September, and should continue to increase production as start-up issues are resolved.
Plain says even with cheap feed, he suggests producers look at locking in prices for corn and soybean meal. "There is a lot of grain, and I'd be inclined to make sure I stay priced ahead," he says.
Plain adds it appears the bottom in the winter hog market will come earlier than normal.
"I don't think this would be a good time to be hedging hogs," he says.
However, producers need to watch the market closely and be prepared to take advantage of any changes in price.
"There has been ample opportunity to lock in some very good margins," says Altin Kalo, an analyst with Steiner Consulting Group in Merrimack, N.H. "Doing that at the fall low may not be the right time, but pay attention to the market.
John Harrington can be reached at email@example.com
Follow John Harrington on Twitter @feelofthemarket
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