GENERAL COMMENTS:
Moderate trade volume is seen in cattle futures Wednesday morning as underlying pressure in feeder cattle early in the session has trickled into the live cattle complex. Although more volume is expected in live cattle trade through the end of the week, morning trade in nearby live cattle contracts is backing away from Tuesday's gains. The driver behind the firm pressure in feeder cattle trade remains. Hog futures are mixed in a narrow to moderate range with October futures able to hold prices higher, although traders remain concerned about further erosion of pork values. December corn is up 6 cents per bushel and December soybean meal is down $2.00 per ton. The Dow Jones Industrial Average is up 156 points.
LIVE CATTLE
October live cattle are trading down $0.52 at $127.60, August live cattle futures remain very lightly traded and generally ineffective as a futures contract at this point in the game. But what the August contract does tell us is that most traders feel there is very little expected movement in cash cattle prices in the immediate future. Although spot August contracts are very lightly traded, the tie to cash market direction cannot be overlooked. October and December futures are holding moderate losses Wednesday morning with traders essentially backing away from Tuesday's gains despite the continued surge in boxed beef values. Futures and cash market trade has heavily discounted the movement in boxed beef values as many feel these wholesale beef prices are overinflated and will be unable to maintain these levels following the Labor Day holiday. Cash cattle activity remains quiet in all areas Wednesday morning. Packer bids are hard to pin down, which could easily push active trade off until Thursday or Friday. Asking prices in the South remain at $123 to $124 per cwt, while northern bids are still very quiet. The Fed Cattle Exchange Auction today listed a total of 4,872 head, of which 590 actually sold, 143 were scratched from the auction and 4,139 head were listed as unsold as they did not meet the reserve prices that ranged from $122 to $124. Opening prices ranged from $120, high bids ranged from $120 to $121.75. The state-by-state breakdown looks like this: Texas 4,800 total head, with 590 head sold at $120 to $120.50, 4,067 head unsold and 143 were scratched from the auction; Kansas 72 total head, all of which went unsold.
Wednesday's morning's boxed beef prices are higher with choice cuts up $5.52 at $305.32 and selects up $3.80 at $284.61 on a total count of 128 loads. Beef values continue to skyrocket higher at breakneck speeds, without the help of futures or cash markets, furthering the disconnect between these markets. Dow Jones estimated Wednesday's cattle slaughter at 120,000, steady with a week ago.
FEEDER CATTLE
September feeders are trading down $0.70 at $162.35, driven primarily by active buyer support in corn markets, increasing overall feed costs for feeders looking to place cattle on feed. Active pressure is not only seen in feeder cattle futures early in the session Wednesday, but losses continue to develop through the morning. The underlying pressure is evident in all nearby and deferred futures, with November contracts posting $1 per cwt losses late morning. The initial driver behind the market selloff has been the renewed gains in corn prices. But as more volume trickles into the complex, the focus on eroding live cattle markets and questions of beef demand support through the winter months is starting to fade recent market optimism. With the exception of the lightly traded August contracts, all nearby contracts are holding between $162 to $166 per cwt, which may be able to establish longer term price ranges through the remainder of summer and early fall months. The CME Feeder Cattle Index was priced at $156.33 for Aug. 9.
LEAN HOGS
October lean hog futures are holding narrow gains of $0.57 per cwt with prices at $84.45 per cwt midmorning. October contracts are the only contract to post higher prices at this point, although most other contract losses remain limited. Lean hog futures remain mixed as light to moderate buyer support is stepping into October contracts with the potential to drive additional late day buying back into the market. The aggressive losses seen over the last week are opening the door for position adjustments even though most traders are still generally uncomfortable about the direction of pork values in the coming weeks. A stronger close in nearby contracts Wednesday could easily bring about renewed market support, helping to regain market composure through the end of the week in all contract months. Sharp gains once again developed in ham and belly cuts with ham values increasing nearly $30 per cwt. The challenge over the past few days is that these gains have not held through the rest of the day, creating further market variation in the more active afternoon report. Cutouts were up $7.81 at $130.21 Tuesday on 168.40 loads, as with ham cuts up $29.92 per cwt while belly cuts are $14.63 higher. Negotiated hog prices are unreported due to packer submission problems on the National Direct Morning Hog Report. Dow Jones estimated Wednesday's hog slaughter at 475,000, 2,000 above a week ago. The CME Lean Hog Index is estimated at $110.77 for Aug. 9.
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