GENERAL COMMENTS:
Futures prices for live cattle, feeder cattle and hogs have been in a back-and-forth, give-and-take pattern this week, which results in net sideways movement. On Wednesday, it's more "take" than "give," with contracts down anywhere from $0.50 to $2.50 across the board. The cash cattle business still isn't expected to shape up until later in the week, when prices will be benchmarked against last week's trade -- mostly $179 live basis in the South and $294 dressed basis in the North. Outside markets are sharply lower, which may be adding to the futures sell-off. September corn is down 5 1/4 cents per bushel and August soybean meal is down $6.10 per ton. The Dow Jones Industrial Average is down 229 points.
LIVE CATTLE:
Live cattle futures have experienced a moderate volume of selling through Wednesday morning amid a widespread financial market meltdown. August live cattle are down $1.40 at $178.10, October live cattle are down $1.35 at $180.475 and December live cattle are down $1.05 at $184.575. A credit rating agency downgraded the U.S. government's debt on Wednesday, citing political polarization as a risk. While political polarization should be no surprise to cattle traders, the downgrade itself was certainly a surprise to stock market traders, and a widespread sell-off is now noted across a variety of asset classes as traders take a risk-off approach and try to close out positions. However, the cattle futures market itself isn't fundamentally inclined to drop too much lower, or it will risk falling out of convergence with the cash cattle market, which is still expected to be strong this week. A small volume of dressed trade was marked at $294 in Nebraska on Tuesday, which was even with last week, but really the market has yet to establish bids and asking prices for this week.
Wednesday's slaughter is estimated at 125,000 head, which is in line with numbers from a week ago and also with a year ago at this time.
Boxed beef prices were mixed Wednesday morning to bring the choice/select spread back in line after Tuesday's big jump in choice values. Wednesday values: choice down $1.85 ($304.25) and select up $0.91 ($280.51), with a movement of 62 loads (37.13 loads of choice, 15.46 loads of select, 0 loads of trim and 9.74 loads of ground beef).
FEEDER CATTLE:
Wednesday's sell-off has extended to feeder cattle futures, as well. The August feeder cattle contract is down $2.325 to $246.15, September feeders are down $2.425 at $249.475 and October feeders are down $2.225 at $251.175. Because the feeder cattle futures contracts are just a more thinly-traded market, they can tend to jump around in a volatile fashion when a sudden mood strikes the speculators, like Wednesday's quick desire to get out of trading positions amid the stock market meltdown. A normal session might only have a trading volume of 7,000 contracts for the most actively-traded feeder cattle contract month, whereas a normal session in the most actively-traded live cattle contract could be more like 30,000 contracts. The feeder cattle charts will therefore continue to be vulnerable to streaky movement through the day, but ultimately the market will go back to reflecting the bullish fundamentals of the drought-stricken calf-to-beef supply chain.
LEAN HOGS:
The lean hog market has always been traditionally sensitive to the pulse of the stock market, so it may be no surprise that these futures contracts are following the direction of the outside markets Wednesday. August lean hogs are down $1.15 to $102.525, October lean hogs are down $1.275 at $84.375 and December lean hogs are down $1.05 at $76.20. The U.S. government's bonds were formerly rated AAA by the Fitch credit ratings agency, which seems obvious for the most trusted financial asset in the world, so Wednesday's drop to AA+ certainly caught the market off guard. Ultimately, it will be seen as what it is: just one agency's subjective opinion, but the risks it cites -- "expected fiscal deterioration over the next three years," "a high and growing general government debt burden, and an "erosion of governance" -- do indeed sound bad. Not necessarily so bad that grocery shoppers are going to stop buying pork, however, and certainly not so bad that packers are going to stop buying hogs this week. Pork cutout values improved through the month of July and remain relatively stable, which helps packer margins. Wednesday's slaughter is projected at 470,000 head, which is 3,000 more than a week ago and 5,000 more than a year ago at this time.
The projected CME Lean Hog Index for Aug. 1 is down $0.10 at $105.80 and the actual index for July 31 was down $0.10 at $105.90. In Wednesday's Daily Direct Morning Hog Report, negotiated values were down $0.99 to a weighted average price of $103.74, ranging from $93 to $106 on 2,580 head, and the five-day rolling average is $103.37. Pork cutouts total 177.64 loads with 145.99 loads of pork cuts and 31.64 loads of trim. Pork cutout values: down $0.21 to $115.05.
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