Action in cattle country Monday will be limited to the distribution of new showlists. Friday's late developing cash trade makes it tough to estimate last week's trade volume. Our guess is that at least some beef producers carried over unsold steers and heifers. In other words, the new feedlot offering could be somewhat larger than last week. Though it will be interesting to see mandatory summaries when they are issued just before the noon hour. Live and feeder are likely to open on a mixed basis thanks to a combination of cash strength and uncertain November beef demand.
Hog buyers should resume procurement chores Monday with bids steady to $1 lower. Chain speed barely missed setting a new all-time record last week, but we could see the historical slaughter bar raised this week, possibly totaling well over 2.6 million head. Lean futures should open with uneven price action as traders struggle to assess the balance between late-year pork supply and demand.
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Although cattle-market watchers had to stay very late on Friday to clock light to moderate trade volume, their patient vigil was rewarded in terms of higher dressed and live sales (e.g., $116 in †he South, $1 to $2 higher). Feedlots still have some leverage.
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Beef cutouts started to falter on Friday (perhaps causing cattle buyers to be slow in writing bigger checks), the first warning sign of softer red meat through most of the month of November.
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Strong demand for late-year beef cuts accounted for 50% of last week's beef carcass value.
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For the week ended Oct. 30, noncommercials further reduced their net-long position in live cattle futures by 5,200 to a total of 79,300.
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For the week ended Oct. 30, noncommercials increased their long position in lean hog futures by 7,100 contracts resulting in a net long of 11,300.
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The pork cutout is trending lower and likely to trend lower the next few weeks before finding a price bottom. If carcass value heads lower, packers should be able to pressure hog prices lower in order to protect margins.
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| 4) |
Assuming the credibility of the Sept. 1 Hogs & Pigs inventory, more market hogs should be here by now, with the relative supply week ended Oct. 30 able to continue to put pressure on the pricing structure. But hog harvests have not been in alignment with producer surveyed data, at least not the magnitude.
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The normal pattern of live hog weights should see continual gains for the next five or six weeks.
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CATTLE: (CNBC LLC) -- The U.S. goods and services deficit increased more than expected in September amid escalating tensions with its global trading partners.
The shortfall rose to $54 billion for the month, a 1.3 percent increase, or $700 million, from August and reflective of a 10.1 percent increase year to date, according to government numbers released Friday. Economists surveyed by
Refinitiv had been looking for a gain of $53.6 billion. The goods deficit stood at $76.3 billion, the highest on record on a seasonally adjusted basis.
Exports increased to $212.6 billion, a $3.1 billion gain from August, while imports rose $3.8 billion to $266.6 billion.
Those numbers come as the Trump administration moved forward with a plan to tax $200 billion worth of Chinese imports and as China countered. In recent days, President Donald Trump has expressed hope that upcoming talks with Chinese President Xi Jinping can yield fruits on the impasse between the two nations.
Trump has expressed disdain for trade imbalances and has vowed to use tariffs as a way to reduce deficits and get agreements that are fairer to the U.S. For all of 2018, the global trade deficit has increased $40.7 billion, a result of a $143.8 billion increase in imports and a $184.5 gain in imports.
On a three-month average, the goods and services shortfall rose 5.6 percent from the same period a year ago. In China's case, the goods and services deficit increased to $40.2 billion, the highest on record on a non-seasonally adjusted basis Year to date, the U.S. is running a $301.4 billion deficit with China. The closely watched soybean trade was reflective of the trade tensions, with the decline in September exports at $744 million from the previous month.
The goods and services deficit with Russia rose to $1.7 billion, the highest since May 2013.
The goods deficit with Mexico showed a sharp decline, falling $1.1 billion to $7.6 billion, a 12.6 percent slide. The move came almost entirely due to exports, which rose $1.1 billion to $22.5 billion. Imports were little changed, falling less than $100 million to $30.1 billion.
HOGS: (Iowa Farmer Monday) -- The fourth quarter of the year is never kind to pork producers, but the worst may already be over.
Steve Meyer, economist with Kerns and Associates in Ames, says he expects prices to move sideways through the end of the year.
"I think we've probably seen our low for the year," he says. "We are seeing lower slaughter numbers than we expected, and it looks like Mexico may be back in the ham market."
Meyer says retaliatory tariffs may not have had the negative impact some anticipated.
"This trade spat is not as negative as we thought because exports are still up for the year," he says. "Over the last six weeks, there have not been as many hogs as many thought we'd have, likely due to PRRS losses last spring. We're not sure how USDA missed that."
Lee Schulz, Extension livestock marketing economist at Iowa State University, says farrow-to-finish producers are losing about $8.50 per head. Break-evens are estimated at $62 per hundredweight on a lean basis, he says.
Schulz says prices over the fourth quarter will average between $53 and $57 per hundredweight, with prices in the low $60s over the first quarter of 2019. Prices should average around $70 over the second and third quarters.
"A lot pigs are already hedged, so the losses may not be as big for some producers," he says.
Schulz says there could be weeks this winter where packer capacity could be challenged, but Saturday slaughter schedules will help.
He says feed costs are expected to remain low as the USDA forecasts a huge crop this fall.
"Even with all that grain, it's never a bad idea to protect your feed needs," Schulz says. Despite lower prices, Meyer says most expansion plans are moving ahead.
"The futures market next summer has prices around $80, so that is saying you shouldn't slow down," he says. "There is certainly a hedging opportunity there to lock in prices."
There are factors that may cloud that forecast.
"Trade is certainly a big issue. Over the long-term, we have to get everything figured out," he says. "The news on NAFTA is certainly good, since export growth into Mexico has been growing."
Competing meats could also hurt demand.
"Beef production is up, with 3 to 4 percent more beef out there," Meyer says.
"There are six poultry plants that will be online by 2020, so that industry is going to grow pretty substantially."
The potential for African swine fever to reach U.S. shores could also take a bite out of the market, Meyer says.
He also has some concerns regarding the domestic economy.
"We've had a very long recovery, but there are storm clouds on the horizon," Meyer says. "How deep will that next recession be?"
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