GENERAL COMMENTS:
A third week of increased drought conditions in the Midwest has cattle and feeders trading lower Thursday morning. July lean hogs have turned lower at midday, while August hogs are trading higher.
LIVE CATTLE:
Here on Thursday, August live cattle futures are up $0.50 at $171.47, well below last week's weighted average of $188.75 for negotiated live steers in the five-state area as prices were spooked earlier by a combination of rising feed costs and the latest talk from the Federal Reserve. On Wednesday afternoon, the Fed left its federal funds target unchanged, as expected, but also mentioned another half-percent increase in interest rates was likely in 2023.
The more disruptive event that has emerged recently is the development of widespread drought across the Midwest. Triple-digit temperatures in Texas are stressing livestock and pushing highs into the 90s as far north as South Dakota and Illinois on Thursday. The U.S. Drought Monitor showed a third consecutive week of worsening drought conditions in the central and eastern Midwest with the result that corn and soybean prices are trading sharply higher. The seven-day forecast does have chances for rain for in the next 10 days, but states around the Great Lakes, including eastern Iowa and Illinois, are expected to remain chronically dry.
Cash cattle trade has yet to develop this week, but we do see higher boxed beef prices and active slaughter expected. Choice boxed beef prices gained $2.79 Tuesday morning to $341.85, while selects were up 81 cents at $310.07, both remaining strong sources of support, in spite of traders' worries about the economy. Dow Jones estimates Thursday's slaughter at 126,000, up from 125,000 a week ago, but down from 126,988 a year ago. Eastern Colorado, Kansas and Oklahoma are expecting moderate rains the next few days, but Texas will be dry with triple-digit temperatures into next week. USDA reported 12,800 metric tons (mt) of beef sold for export last week, a modest amount with China named the top buyer.
FEEDER CATTLE:
At midmorning Thursday, August feeder cattle are down $1.52 at $234.37, falling further from June's earlier high of $245.17 with July corn trading 9 cents higher and traders keeping an eye on the worsening drought situation for this year's row crops. The Federal Reserve held off on raising rates Wednesday afternoon but continued to agitate traders with an expectation for another half-percent rate hike sometime in 2023.
The latest CME Feeder Index was at $228.25 for Tuesday, June 13, staying well below the August futures price. Thursday morning's Drought Monitor showed moisture improvement in the southwestern Plains and more moderate rain amounts are expected the next few days. Texas however, will stay hot and dry for at least a week.
LEAN HOGS:
At midmorning Thursday, July hog futures are trading down $0.95 at $91.82, turned back by an earlier challenging of resistance from the 100-day average at $94.40. Futures contracts reversed sharply higher in late May after USDA helped the market with a $50 million pork purchase and cash prices have also responded higher. I can't over-emphasize the amount of confusion in the market as to how the new requirements of Proposition 12 will be implemented, supposedly by July 1.
The good news for hog producers is that cash negotiated hog prices have seen a nice jump since trading near $66 in late April. Negotiated cash hog prices in Thursday morning's Daily Direct Hog report averaged 93.55 cents per pound and the swine formula base was at 86.72 cents. Pork cutouts were down a penny at $89.72 on 136.39 loads. Ribs were lower.
CME's most recent lean hog index was projected at $86.25 for Tuesday, June 13, 2023. Here on Thursday, Dow Jones estimated the hog slaughter at 466,000, down from 469,000 last week and also lower than a year ago. USDA reported 26,700 mt of pork sold for export last week with Mexico listed as the top buyer and China coming in fourth.
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