GENERAL COMMENTS:
Trade Monday morning has been full of post-report market adjustments. The Cattle on Feed report posted bearish news with larger-than-expected cattle on feed numbers and feeder cattle placed in feedlots during the month of August. Lean hog futures are showing significant support as tighter-than-expected inventory levels are driving buyers back into all nearby and deferred contract months. December and February futures are trading $4.75 per cwt higher at midday, which is the daily trading limit. December corn is up 10 3/4 cents per bushel and December soybean meal is up $3.00 per ton. The Dow Jones Industrial Average is up 141 points with Nasdaq down 109 points.
LIVE CATTLE:
Trade is limited in nearby live cattle futures Monday morning. Although the underlying tone of the market remains weak following Friday's Cattle on Feed report, most of the activity has been centered in deferred live cattle markets and feeder cattle trade, leaving nearby futures with just light to moderate losses at midday. Larger-than-expected on feed numbers are negative for the entire industry, but traders are more focused on increased placement levels, which will most impact market-ready cattle numbers in the second and third quarters of 2022. This has April through August 2022 contracts posting the most aggressive losses of 55 to 75 cents per cwt. It is uncertain just how much additional weakness will be pushed through the live cattle complex as a portion of the pressure is expected to have already been factored into price levels over the last six weeks. Cash cattle markets remain very quiet Monday morning. This lack of activity is not surprising as feeders and packers are assessing the current market situation and likely will not show much interest until midweek or later. There will be increased focus on the weighted average prices released later Monday morning for last week's trade volume and price direction. Given the softness in futures trade and lack of support from last week's Cattle on Feed report, cash cattle markets could remain lackluster at best, with potential further price erosion by the end of the week.
Monday morning's boxed beef prices are mixed in light trade, with choice cuts $0.76 lower at $302.56 and selects up $0.52 at $275.05 on a total count of 44 loads. Dow Jones estimated Friday's cattle slaughter at 120,000, steady with a week ago -- 5,000 more than year ago levels.
FEEDER CATTLE:
Feeder cattle futures have not taken kindly to the larger-than-expected increase in feeder cattle placements during August seen in Friday's Cattle on Feed report. Not only did feeder cattle placements come in well above analyst estimates, but placements were 2% ahead of the already large placement last year. Feeder cattle placements during August were the largest August placement since the series began and the largest monthly placement since last November. Placements are expected to follow seasonal patterns with increased movement to feed yards through the next few months. But the larger amount in feed yards will likely keep prices under pressure over the next few weeks. This will also lead to more market-ready cattle during early spring, which could limit overall widespread support in futures and cash markets late winter. September futures are essentially dead in the water Monday morning as traders are just waiting for these contracts to expire. But October through January futures are trading $2 to $2.50 per cwt lower at midday with no indication that any buyer support will develop in the near future. Double-digit gains in corn trade are also adding to the market pressure, quickly increasing overall production costs to any feeder cattle purchased. The CME Feeder Index was priced at $154.04 for Sept. 23.
LEAN HOGS:
Lean hog futures have moved sharply higher Monday morning with December and February contracts locked in limit gains of $4.75 per cwt following much-tighter-than-expected inventory levels in Friday's Hogs and Pigs report. With total hog inventory levels at 75.3 million head, total hog numbers have fallen 3.1 million head from year ago levels. This pullback in production levels is much more aggressive than the market was expecting, creating price rallies Monday morning. Although a portion of the bullishness has already been factored into the market over the last week, the report still took nearly everyone off guard, and resulted in aggressive triple-digit gains in all contract months. December and February futures are the contracts where the tight supplies will be most evident, leading traders to push prices to daily limits within the first two hours of trade. If either one of these contracts closes locked in limit gains Monday, this will allow for the entire complex to trade with expanded trade limits of $7 per cwt Tuesday. This could create further volatility in the market, which is currently being driven by emotion. Cutouts are up $5.59 at $116.36 Monday morning on 154.95 loads. Negotiated hog prices are $0.80 lower at $76.13 per cwt on 4,145 head. The swine/pork market formula price is listed at $92.23 per cwt. Dow Jones estimated Monday's hog slaughter at 475,000 -- steady with a week ago and 15,000 less than year ago levels. The CME Lean Hog Index is estimated at $91.47 for Sept. 23.
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