GENERAL COMMENTS:
Some of the livestock contracts' heaviest trading volume Wednesday occurred in the last five minutes of the session, as widespread markets reacted to the Federal Reserve's new target fed funds rate of 3.0% to 3.25%, a 0.75-percentage-point rate hike. The stock market dropped and the U.S. Dollar Index was up over 1.25 points in response. Nearby lean hog futures led the losses in the livestock sector and the cattle markets were also lower at the close. Cash cattle have seen no trade so far this week, but asking prices are around $145 to $146 in the South. December corn closed down 6 1/2 cents at $6.85 1/2 per bushel and December soybean meal closed down $0.60 at $438.80 per ton. The Dow Jones Industrial Average is up 240 points.
LIVE CATTLE:
Live cattle futures were lower most of Wednesday, staying off Tuesday's fresh contract highs, and when the Federal Reserve gave a nod to inflation pressures with a 0.75-percentage-point rate hike Wednesday afternoon, the cattle market kept its head down. October live cattle closed $0.425 lower at $145.875, December live cattle closed $0.325 lower at $150.75, and February live cattle closed $0.30 lower at $154.90. This outside market volatility from bonds and currencies might not sting so much if it weren't for the steadily eroding boxed beef values which hint at consumers' willingness to shy away from restaurant meals and higher-priced cuts in uncertain economic times. The choice cutout has slipped almost $20 per cwt since the start of August, and the choice-to-select spread has generally been narrowing. Nevertheless, in coming days, cattle futures traders are more likely to focus on the supply side of things in the upcoming Cattle-on-Feed report, which is expected to show roughly the same Sept. 1 number of cattle on feed as a year ago, after a diminished beef herd contributed a lower quantity of August placements (estimated down 1.5% from last year). The front-month chart remains within 25 cents of its recent high and could easily explore fresh levels while traders position themselves in anticipation of this news. Cash cattle trade remains quiet so far this week, but some asking prices are around $145 to $146 in the South (which would be $3 to $4 higher than last week), and are still not established in the North, where dressed cattle traded for $226 to $227 last week. So long as processing speeds don't decline, packers are still going to need cattle.
Wednesday's slaughter is estimated at 128,000 head -- 1,000 head more than a week ago and 8,000 head more than a year ago.
THURSDAY'S CASH CATTLE CALL: $1.00 to $2.00 higher. Packers used the weeks surrounding the Labor Day weekend as an opportunity to brake-check the cash cattle market. But in doing so they also made it so they need to buy cattle now to ensure they'll have enough cattle to fulfill upcoming kills.
FEEDER CATTLE:
Amid a relatively low volume of futures trade Wednesday, feeder cattle weren't able to hold onto gains. October feeders closed $0.80 lower at $179.225, November feeders closed $0.95 lower at $180.325, and January feeders closed $0.925 lower at $181.975. Corn prices actually pulled back from their Tuesday highs, but October soybean meal just kept churning to a fresh contract high Wednesday ($458 per ton), so putting a price on ration ingredients continues to be a challenge for cattle-feeding businesses. Cash trade for calves at sale barns across the countryside remains seasonally pretty quiet, but it's the eerie quiet before a storm, i.e. the upcoming fall run. Where the market has been tested so far, demand has been characterized as good.
LEAN HOGS:
Prices in the pork and hog markets have been fast-moving targets this week and Wednesday the lean hog futures contracts joined in that volatile action with triple-digit losses. October lean hogs closed $1.55 lower at $94.425, December lean hogs closed $1.725 lower at $86.45, and February lean hogs closed $1.50 lower at $90.65. In order to achieve impressive slaughter numbers in recent days, packers have been bidding up the hog market at a blistering pace this week -- $5 higher in Tuesday's afternoon hog report and higher Wednesday morning, too. However, similar volatility has been noted in pork products, but to the downside, with bellies, loins, and ribs all seeing a seasonal hit Wednesday. Together, these two phenomena eat away at packers' margins, but low-margin/high-volume has often been the name of the game, and with the U.S. swine herd expected to keep growing, it's just as well if the market can handle large throughput numbers, like the 482,000 head slaughtered Wednesday.
THURSDAY'S CASH HOG CALL: Steady. Short-bought packers have eagerly bid up the cash market nearly $5 higher so far this week and may not have deep enough pockets for much more movement beyond what's already been seen.
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