GENERAL COMMENTS:
Pressure swept through livestock futures late Tuesday morning following production revisions for beef and pork in the latest WASDE report. Beef production came in larger (as expected) for both 2021 and 2022. Pork production posted the largest surprise with a 560-million-pound lower adjustment. This created concerns for the lean hog market as these production decreases also come with significant reductions in overall pork demand for 2022. December corn is down 9 cents per bushel and December soybean meal is down $1.60 per ton. The Dow Jones Industrial Average is down 6 points with Nasdaq down 9 points.
LIVE CATTLE:
Live cattle futures spent most of the morning within a limited, mixed range. Following the 11 a.m. CDT release of the October WASDE report, firm pressure developed in nearby live cattle contracts as traders focused on a reversal of production estimates from previous reports. Beef production in the October report posted a 90-million-pound increase for 2021 and 120-million-pound increase for 2022 compared to the September report. This changed the overall tone of the market, as nearby contracts posted 50- to 80-cent losses at midday. Deferred futures posted less aggressive losses, but also focused on a shift in production levels and added 20- to 30-cent losses at midday. The lower grain market and production costs had little to no positive impact in the complex as traders struggle with how to account for the abrupt shift in short- and long-term beef production within the current confines of futures trade over the next couple of days. Cash cattle interest remains quiet Tuesday morning with bids undeveloped. This is not any surprise as most expect packers to show limited interest through the rest of the day and likely become more focused once Wednesday morning rolls around. A few early asking prices in the South are seen at $125 to $126 per cwt, but Northern asking prices are yet to develop. It will be interesting following last week's higher trade levels, if the bulk of trade will once again develop at midweek as has been the pattern over the last month, or if feeders will hold out for possible higher trade at the end of the week.
Tuesday morning's boxed beef prices are lower in moderate trade, with choice cuts $0.27 lower at $280.85 and selects down $2.19 at $261.45 on a total count of 107 loads. Dow Jones estimated Tuesday's cattle slaughter at 121,000 -- steady with a week ago and year ago.
FEEDER CATTLE:
Limited activity is seen in feeder cattle trade late Tuesday morning with mixed price levels holding following the USDA reports. October feeder cattle futures are under more pressure with a 72-cent per cwt loss, although limited overall volume in the spot month contract leaves uncertainty about how current pressure in grain trade is being offset by concerns that beef production was increased in the latest WASDE report. Although the live cattle market is more directed by current production, increased 2022 production of beef compared to last month's estimate is creating some second thoughts about current price levels of both live cattle and feeder cattle contracts late morning. Narrow gains are still holding in deferred feeder cattle trade, although the underlying focus at this point is coming from significant reductions in grain markets as corn and soybean prices have seen a strong pullback following the morning reports. The CME Feeder Index was priced at $153.62 for Oct. 8.
LEAN HOGS:
Strong follow-through pressure is seen in lean hog futures Tuesday morning with increased uncertainty of pork demand growth even though overall production is expected to remain reduced through the next year. December contracts have quickly retreated below the $80 per cwt levels, currently $1.95 per cwt lower at $78.22 per cwt. The morning WASDE report posted a significant reduction in pork production for the first half of 2022, pushing annual 2022 production to 27.5 billion pounds. This is a 560-million-pound reduction from last month's estimate, and quickly focused attention on the lower hog numbers in the nations hog herd and lower-than-expected farrowing expectations seen in the recent Hogs and Pigs report. The challenge for hog prices is that, even though production levels were significantly reduced, overall total use of pork was reduced by 525 million pounds in 2022. This comes as a significant shift from current year use being increased 135 million pounds in the morning report. Although prices are still well above market lows seen in early September, a large portion of the recent rally may still be in danger as traders continue to balance reduced supplies with the strong possibility that demand may erode. Cutouts are down $1.41 at $106.60 Tuesday morning on 253.68 loads. Negotiated hog prices are $0.04 lower at $68.33 per cwt on 4,710 head. The swine/pork market formula price is listed at $89.80 per cwt. Dow Jones estimated Tuesday's hog slaughter at 478,000 -- 1,000 more than a week ago and 5,000 less than year ago levels. The CME Lean Hog Index is listed at $90.94 per cwt for Oct. 11.
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