The cash cattle market will stay poorly defined Tuesday with both buyers and sellers probably sitting on their hands until the second half of the week. All eyes will be on the board, eager to discover whether Monday's crash was just a one-day reaction to the Cattle on Feed report or something much more serious. Live and feeder futures are likely to open on a mixed basis Tuesday, shattered by a combination of follow-through selling and short covering.
Hog buyers seem likely to resume procurement chores with opening bids of a buck or so lower. Lean futures are also set to open mixed as specs and commercials cautiously position ahead of the Hogs & Pigs release on Thursday. Further unwinding of bear spreads should mean nearby issues gain on deferred counterparts.
| BULL SIDE | BEAR SIDE | ||
| 1) | Beef cutouts have opened the week with new strength, closing sharply higher on Monday. Furthermore, box demand was initially described as "moderate to fairly good." | 1) | Cattle futures crashed and burned following last Friday's news that August placement activity was larger than expected. The large bearish gap created on charts could prove to be a trend stopper if bulls cannot counter the sell-off quite soon. |
| 2) | The comprehensive boxed beef report released Monday indicated that out-front business (i.e., deals with 22 days or more of delivery) remains very strong, totaling 1,333 loads, 171 more than the previous week and 218 more than 2016. | 2) | If nearby live futures continue to slide lower through midweek, the strength basis could work to significantly damage the country leverage of feedlot managers. |
| 3) | The pork carcass value finally caught a bounce on Monday, closing solidly higher thanks to better demand for butts, picnics and hams. | 3) | Despite Monday's token rally in nearby lean hog futures, the short-term trend and the long-term market trends are solidly negative. Furthermore, the discount on the board reflects traders' bearish price expectations over the next three weeks as the October futures is well under the current cash index. |
| 4) | While record pork supplies over the foreseeable future are virtually a given, expectations are that exports are going to expand and temper the impact of larger supplies on the domestic market. | 4) | Chain speed set another daily record on Monday with estimated hog kill of 460,000 head. The amazing and demand-challenging pace of pork production continues to accelerate. |
CATTLE:(Ottawa Citizen) -- There are now fewer Canadians cows than at any point since the early 1990s and, according to analysts, it's partially millennials' fault.
On Jan. 1, Statistics Canada counted 11,850,000 total cows in Canada-- already a 26-year low.
Now, U.S. authorities monitoring the Canadian cattle market suspect that by 2018 it will drop even lower, to 11,725,000. "Canadian cattle farm numbers have continued to contract as ranchers retire out of the industry without a successor," reads a new report by the United States' Foreign Agricultural Service.
If the 2018 projection holds true, the year will rank as the ninth-lowest year for Canadian cattle numbers since 1970.
It also means that Canada's ratio of cows to citizens remains in steep decline. In 1945, there were seven cows for every 10 Canadians. At the beginning of 2017, that ratio had dropped to only three cows per 10 Canadians.
Part of the recent decline in cattle numbers has been due to drought in the Canadian Prairies reducing the output of grazing land. Faced with keeping their herds alive with trucked-in feed, many farmers opted to send cows off to slaughter or sell them to the United States.
Cattle producers have also cited production being hamstrung by labour shortages. "Many readers, I'm sure, know first-hand how hard it is to find someone to work on a ranch or in a feedlot," reads a 2015 article in Canadian Cattlemen.
In its report, the Foreign Agricultural Service placed special emphasis on what it called "producer attrition." With old ranchers retiring and young ones not stepping up to replace them, there are simply fewer places in Canada raising cattle. Since 2005, the number of cattle farms has gone down by more than third.
The paper noted that Canada's remaining cattle farms were swelling in size, indicating consolidation. However, "the loss of farms continues to outpace the rate of growth in cattle per farm, dragging down the size of the total cattle herd," it wrote.
There's also the simple fact that Canadians aren't eating as much beef as they used to.
In 1980, the year that Terry Fox began his Marathon of Hope, the average Canadian ate 38.8 kilograms of beef per year; the equivalent of 420 McDonald's hamburgers's worth.
In 2017, per capita beef consumption has dropped to 25 kilograms, a reduction of 35 per cent.
Compare that to chicken, which has gone from 16.88 kilograms per year in 1980 to an all-time high of 32.51 kilograms in 2016 — twice as much.
Indeed, most of the reductions have been seen in the beef sector, which constitutes by far the largest share of Canadian cows. In 2017, there are 9.9 million beef cows to 1.9 million dairy cows.
Dairy cows, like all aspects of the Canadian dairy industry, are not subject to normal market pressures as a result of supply management policies. With dairy cow herds strictly regulated by marketing boards, they stay relatively consistent year after year.
Meanwhile, the situation is almost the exact opposite in the pork sector. At the beginning of 2017, there were 14.13 million hogs in Canada, an increase of 290,000 over the previous year.
"Canadian pork exports are projected to continue to reach record high levels in 2018 driven by consumption patterns in Asian markets," wrote the Foreign Agricultural Service.
HOGS: (Bloomberg News) -- Cheap pork is here for American football fans firing up the grill for tailgate parties.
While meat costs in the U.S. tend to drop as summer wraps up, this year the declines are more pronounced. Wholesale pork has fallen to the lowest seasonally since 2009, which could bring down grocery-store bills.
Carnivores can thank a boom in U.S. production for cheaper grocery bills, with output expected to reach an all-time high in 2017. There are signs that prices will stay low. December hog futures are on pace for a third straight monthly loss, and hedge funds have lowered their bets on a rebound in five of the past six weeks.
"There's no shortage of meat," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa. "The retail price is probably going to stay under pressure."
American pork production is forecast to rise 3.6 percent this year, with even more meat coming in 2018, according to the U.S. Department of Agriculture. Beef and chicken output are also climbing as steady corn prices keep feed costs low for livestock producers.
In Chicago, hog futures for December settlement slumped 3.2 percent last week to 56.625 cents a pound, the biggest drop in a month.
Speculators aren't showing much enthusiasm for a rally. Investors' net-long position, or the difference between bets on a price increase and wagers on a decline, rose just 1.6 percent to 56,732 futures and options contracts in the week ended Sept. 19, according to U.S. Commodity Futures Trading Commission data released three days later. What's more telling: the holdings are down 33 percent from this year's high in mid-July.
Wholesale meat prices typically start to fall in mid-summer as buying for the grilling season wanes. Pork has tumbled about 30 percent from its July peak, and pork-bellies -- the cut used for bacon -- have dropped almost 60 percent. That could curb costs at the grocery store, when tend to lag wholesale declines. In August, retail bacon was a record $6.241 a pound. And while chops are down from historical highs, prices also ticked up at supermarket coolers last month.
Expanding supplies signal lower costs ahead. Total U.S. meat output may top 100 billion pounds for the first time ever this year.
U.S. pork processors are adding plants in the Midwest, and capacity may rise as much as 10 percent by mid-2019, according to a June report from CoBank, an agricultural lending cooperative based in Greenwood Village, Colorado. Hog-slaughter weights have been rising recently, which adds to production. The USDA is scheduled to release its latest figures on the domestic hog herd in a report next week.
One thing that meat eaters should watch out for: A rise in beef prices.
While wholesale costs for the commodity are heading for a fourth month of declines, investors are signaling they're preparing for a turnaround. The cattle net-long position rose 5.3 percent last week to 86,652 contracts, the CFTC data show. That marked a second straight gain, the longest streak since the end of May.
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