GENERAL COMMENTS:
On the day before Thanksgiving, slaughter paces will slow as cattle prices remain near their lowest level in six months and hog prices are near their lowest levels this year.
LIVE CATTLE:
February live cattle futures are down 30 cents at $175.82, a quiet day of trading the day before Thanksgiving with prices near their lowest levels in six months after on-feed numbers jumped 900 million head the past three months. Despite the higher numbers, there is no sign of herd expansion we can see and, to the contrary, a modest increase in beef cows on feed in October suggests liquidation is still taking place. The weekly slaughter pace remains active, but Dow Jones estimates Wednesday's slaughter at a lower 123,000 in front of Thursday's holiday.
Cash cattle trade has been light so far, with reports of roughly $1.00 to $1.50 lower in Kansas and Nebraska, but not enough yet to reach conclusions. Choice boxed beef prices were up $1.17 Wednesday morning to $296.98, while selects were down $1.78 at $266.99 on 114 total loads, both showing signs of slipping in November as they often do. Lower temperatures are expected to push into the northwestern Plains, starting Thursday, but the forecast is mostly dry the next two weeks, favorable for moving cattle.
FEEDER CATTLE:
January feeder cattle are down a dime at $228.22, also trading quietly at midday, near their lowest prices in six months. As with live cattle, speculators in the feeder market were heavily net long a couple months ago and then sold off sharply, further hit by the surprise of higher placements in USDA's Oct. 20 on-feed report. Specs are now slightly net short and shouldn't be much of a distraction from here.
The latest CME Feeder Cattle Index was at $226.76 for Monday, Nov. 20, a little below the January futures price. Wednesday morning's U.S. Drought Monitor showed moisture improvement in Texas, but drought remains a concern in the southwestern Plains and in the western Midwest with a mostly dry forecast ahead. However, pasture conditions are looking much better this year in the Dakotas and western Nebraska.
LEAN HOGS:
February lean hogs are trading down $0.50 at $71.82, extending a new low in November after falling $2.72 Tuesday, unable to find any buyers willing to go above $78. As far as we can tell, this appears to be a well-supplied market with no sign of packers having any trouble securing their weekly needs for the pork market. USDA's Daily Direct morning report showed national negotiated hog prices at a deep discount of $60.45 and national formula prices at $73.36. CME's most recent lean hog index was projected at $74.18 for Monday, Nov. 20. The weekly slaughter pace has been active, but Wednesday's slaughter is expected to dip to 455,000 ahead of Thanksgiving.
This year continues to be one of the most unprofitable years for hog producers, possibly since 1998, and a reduction in hog numbers seems likely at some point. For now, packers must be ecstatic with the cheap hog prices as pork cutouts are bringing $87.09 Wednesday morning on 196.35 loads. One sign of possible support in the market is coming from commercials that CFTC says were net long 14,461 contracts as of November 14. Commercials have shown more interest when February hog prices dip into the low $70s, but there is no sign yet of the downtrend being over.
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