GENERAL COMMENTS:
What looked like a bullish day for livestock early Thursday ended with April hogs at a new seven-month high, April cattle lower and feeders modestly higher.
LIVE CATTLE:
April live cattle traded $1.50 higher early but turned lower at about 11 a.m. CST and finished down $1.15 at $186.55 Thursday. There was nothing in the morning data to worry the market as choice boxed beef prices were up $1.39 and selects were up $1.23. The lower close completed a bearish outside reversal near the contract's highest prices in four months with cattle on-feed report due out at 2 p.m. Friday. Dow Jones' survey of eight analysts expects USDA to report 11.72 million head of cattle on-feed as of February 1, up slightly from a year ago, but down 214,000 from the previous month. January placements are expected to be down 13% from a year ago. Cash cattle trade has been too light so far to establish a trend for the week.
Even though Thursday's reversal is possibly a bearish warning from a technical perspective, the fundamental price outlook remains bullish for cattle in 2024. Limited numbers of cattle and calves are well-known and boxed beef prices reflect active retail demand. On Thursday afternoon, USDA quoted choice boxed beef up $1.99 at $299.79 and selects up $1.35 at $285.81. Both prices are up roughly $25 from early January. Also Thursday afternoon, USDA said beef production totaled 2.28 billion pounds in January, down 2% from a year ago. Slaughter was down 3% and the average live weight was up 9 pounds from a year ago, at 1,389 pounds. Thursday's cattle slaughter totaled 123,000 head, the same as a week ago.
FRIDAY'S CATTLE CALL: Steady early Friday with traders cautious ahead of Friday afternoon's on-feed report.
FEEDER CATTLE:
Similar to live cattle, April feeders were trading $3.00 higher at one point Thursday and also turned lower around 11 a.m., but finished up $0.77 on the day at $256.70, a new four-month high. It was just over three weeks ago USDA estimated 13.28 million calves in the U.S., the smallest start to a year since 1941. With beef cow numbers also down and heifers showing up in the on-feed report as recently as January, the supply of feeder cattle is tight and that is not an easy problem to solve in the short run.
The CME Feeder Index was $244.49 for Wednesday, February 21, $7.56 below the April futures price. The feeder/live cattle ratio for April contracts is 1.38, 8% above the five-year average, but not out of line for a market with tight supplies. Technically speaking, April feeder cattle have closed up 8 of the past 9 weeks and are in good shape for 9 out of 10. The market has been trending higher since early December and shows no sign of reversing yet.
LEAN HOGS:
It has been almost one month since April lean hogs closed above both, their 100-day average and one-month high on January 23 and prices have followed through higher since, largely due to improved demand for cash hogs. Thursday afternoon's cut-outs were up $1.72 at $91.89 with help from a $6.01 gain in bellies and a $4.67 boost in hams, based on 230.97 loads. Cut-outs remain well above cash hog prices, a good sign of retail demand, but cash prices are also climbing. Negotiated national cash hog prices ended at $73.20 Thursday, just $4.87 below the swine formula price of $78.07. Negotiated prices are up $28 since the first of the year, no small improvement and a strong indication of how much packer demand has improved, not only for negotiated trade but for all hogs in less than two months.
Thursday afternoon, USDA said 2.47 billion pounds of pork was produced in January, 2% more than a year ago. Hog slaughter was also up 2% in January from a year ago, totaling 11.4 million head. The average live weight of 292 pounds was 1 pound lighter than a year ago. USDA estimated Thursday's hog slaughter at 490,000, up slightly from last week. The CME Hog Index was projected at $78.78 as of Wednesday, February 21, $8.42 below the April close.
There will be attention on Friday morning's pork export sales report from USDA. Last week, USDA said there were 71,900 metric tons (mt) of U.S. pork sold for export the previous week. On Tuesday, USDA said the amounts of 19,286 mt to China and 18,878 to Mexico were incorrect and new amounts will be issued in Friday's 7:30 a.m. CST report.
FRIDAY'S HOG CALL: Steady to higher in April hogs with support from improving cash demand.
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