The cash cattle trade will probably stay grounded this morning with bids and asking prices poorly defined. While both sides will be carefully monitoring the board for suggestions of pre-holiday value, our guess is that feedlot managers will start out pricing ready steers and heifers around $108-110 in the South and $173-plus in the North. Live and feeder contracts seem set to open some higher, boosted by further short covering and cautious technical buying.
Look for hog buyers to keep hammering away at the cash market today. To be sure, they'll put it back in the toolbox when it ceases to move country inventory. But as long as lower bids actually work to fund large and profitable kills, packers will stick with a winning game plan. Lean futures should start out moderately lower, pressured by follow-through buying and negative fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | Bottom building promise certainly improved on Monday with most live and feeder cattle futures closed with triple-digit gains. While many issues just seem to be flirting with the top of the August trading range, November feeders surged and closed well above its 40 and 100-day moving averages. | 1) | Though beef cut-outs closed modestly higher on Monday, the bounce was not very inspirational given how much the wholesale trade has imploded over the last 30-45 days. Furthermore, early week box supplies were described as: moderate to heavy." |
| 2) | If live futures can continue to firm, the soften basis should lend feedlot managers greater cash leverage. | 2) | Although soon-to-be-spot October live scored its highest close since August 15, the settlement was nearly 150 points below the session high. Furthermore, the close at $108.37 remained well below the 40-day and 100-day moving averages, while the short-term and longer-term trends remain negative. |
| 3) | October lean hogs remain at a trading value below the low end of the most recent 5-year trading range. While bears could prove to be right as rain, the fall market now seems quite vulnerable to a bullish surprise (e.g., the spring pig crop turns out to be too small to satisfy accelerating chain speed. | 3) | Nearby lean hog futures continue to collapse with bearish traders apparently determined to main nearby deep discounts to the spot cash trade. Lead October settled at its lowest point since last December. |
| 4) | Once the board gets past Labor Day, October lean hogs more times than not tends to turn higher into contract expiration. | 4) | The pork carcass value closed moderately lower yesterday, once again weight by retreating belly demand. Specifically, the belly primal lost another $6.31. |
CATTLE: (Texas A&M) -- COLLEGE STATION -- The 54 Texas counties declared a disaster area due to Hurricane Harvey contain over 1.2 million beef cows, according to a U.S. Department of Agriculture inventory report.
"That's 27 percent of the state's cowherd," said Dr. David Anderson, Texas A&M AgriLife Extension Service livestock economist in College Station. "That's a conservative estimate of beef cow numbers because 14 of those counties only have cattle inventory estimates."
Anderson noted since it is late August, a lot of calves in the affected areas are either close or ready to be marketed. The disaster area also includes a large number of livestock auction markets and Sam Kane meat processing.
Anderson also commented on the recent USDA Cattle on Feed report.
National placements were reported up 2.7 percent. The average of the pre-report estimates was up about 6.1 percent from last year, Anderson noted.
"I think it is likely that placements in earlier months pulled cattle ahead, as has happened on the marketing side of the ledger in the first half of the year," Anderson said. "Placements in July were lower than June, for the first time since 2007. It makes for an interesting placements chart with the counter seasonal move."
The number of cattle on feed was reported to be 104.3 percent of a year ago.
"Another interesting point is the increasing number of cattle on feed more than 120 days," he said. "This will bear watching. We have placed more lighter weight cattle in recent months, but we certainly don't need slower marketings."
Higher placements in Minnesota, Nebraska and South Dakota indicated more cattle moving to Corn Belt feeders, but on the other side of that, Iowa placements were below a year ago, Anderson said.
HOGS: (NPPC) -- President Trump at a rally last week in Phoenix hinted that he may withdraw from the North American Free Trade Agreement (NAFTA), stating: "I've told you from the first day that we will renegotiate NAFTA, or we will terminate NAFTA. I don't personally think you can make a deal without termination, but we're going to see what happens."
The NAFTA comments are the first from Trump since renegotiation talks on the 23-year-old deal between the United States, Canada and Mexico began Aug. 16. If the agreement is terminated, the U.S. economy will suffer, especially the agriculture industry and U.S. pork producers, NPPC has pointed out. Iowa State University economist Dermot Hayes calculated that if Mexico placed a 20 percent duty on U.S. pork -- a likely response to a U.S. withdrawal from NAFTA -- and allowed other countries duty-free access, the U.S. pork industry eventually would lose the entire Mexican market. That would result in a loss of 5 percent of U.S. pork production at a cost of $14 per hog; the cumulative impact on the U.S. pork industry would be $1.7 billion.
NPPC outlined the benefits of NAFTA in a white paper released earlier this year. The organization has urged the Trump administration to "modernize" NAFTA and to maintain the zero-tariff rate on pork trade with the U.S. pork industry's No.2 (Mexico) and No. 4 (Canada) export markets.
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