Thursday Midday Livestock Market Summary - Exports Send Hogs Higher and Cattle Mostly Lower

GENERAL COMMENTS:

Thursday morning's export report was extremely friendly to the hog market, but it came as a bitter report to beef sales. The cash cattle market's ability to trade cattle higher this week is helping lessen the pain of the morning's report. December corn is down 11 1/2 cents per bushel and December soybean meal is down $5.40. The Dow Jones Industrial Average is down 175.25 points.

LIVE CATTLE:

The live cattle market is trading mixed as the market saw a measly export report but is seeing strong trade develop throughout the cash market. So far, 1,700 head have traded in Kansas and 900 head have traded in Texas, both for $144 live, which is $1.00 higher than last week's weighted average. There should be more cattle that trade Thursday afternoon, but feedlots seem pretty firm in their asking prices of $145 in the South and $233 plus in the North. The nearby live cattle contracts are trading slightly higher into the day's afternoon, but the deferred contracts are trending mildly lower as the market yearns for more support. October live cattle are up $0.52 at $145.20, December live cattle are up $0.05 at $147.97 and February live cattle are down $0.15 at $151.60.

Beef net sales of 16,400 mt for 2022 were primarily for South Korea (6,000 mt) Japan (2,200 mt) and Mexico (2,200 mt).

Boxed beef prices are mixed: choice up $0.58 ($247.64) and select down $0.47 ($218.75) with a movement of 99 loads (58.31 loads of choice, 22.85 loads of select, zero loads of trim and 18.08 loads of ground beef).

FEEDER CATTLE:

A betting person would bet that, with corn trending $0.10 to $0.11 lower heading into Thursday's afternoon, feeders would be trending higher, but without seeing the support they need, traders are sheepishly trading the feeder cattle contracts and letting most of the month's trend lower into the afternoon. October feeders are down $0.70 at $175.85, November feeders are down $0.80 at $176.52 and January feeders are down $0.17 at $177.90. You'd think that the market would look at the morning's developments in the cash cattle market as somewhat of a supportive achievement, but apparently traders aren't agreeing with that logic.

LEAN HOGS:

With the day's export report sharing a monstrous movement of 34,300 metric tons, how couldn't the lean hog complex be celebrating? Right from Thursday's get-go, the complex gapped higher as the market is feeling more confident thanks to the strong fundamental support it's received (i.e. strong export sales, relatively strong domestic sales, and good prices and good movement throughout the cash market). December lean hogs are up $1.07 at $77.57, February lean hogs are up $1.32 at $80.20 and April lean hogs are up $0.90 at $85.42. The cash market will likely close lower as the market has already see robust interest from packers earlier in the week, so traders are going to be eye the performance in cutout values all that much more.

Pork net sales of 34,300 mt for 2022 were primarily for Mexico (16,800 mt), China (10,100 mt) and Canada (1,900 mt).

The projected lean hog index is delayed from the source. Hog prices are lower on the Daily Direct Morning Hog Report, down $0.60 with a weighted average of $89.32, ranging from $84.00 to $98.00 on 6,587 head and a five-day rolling average of $87.54. Pork cutouts total 134.84 loads with 100.99 loads of pork cuts and 33.86 loads of trim. Pork cutout values: up $2.46, $101.75.

Thursday Morning Livestock Market Update - Strong Export Sales Needed for Support

GENERAL COMMENTS:

Livestock showed strength even with the Dow significantly lower during the early part of Wednesday. Optimism over higher cash cattle overrode the weakness of financial markets. However, the weakness of the Dow did not continue throughout the day. Traders remain cautious over ongoing demand due to inflation. There was some light cash trade yesterday $1.00 higher. Cash trading is expected to be active Thursday as packers will need to step up to the plate to purchase what they need for the week. So far, feedlots have not been willing to let cattle go at steady prices with last week. Boxed beef did not continue the streak of higher prices and turned lower Wednesday with choice down $0.98 and select down $2.69. There is some apprehension over the level of export sales that will be seen on the report today and the impact it could have on the market.

October hog futures rebounded, eliminating the loss of Tuesday and then some. The strength of cash required futures to rebound as the October contract is nearing its end and needs to remain close to the index. Cash was again higher on the National Direct Afternoon report with a gain of 0.22. Traders seemed to feel the market had no business falling as it did and may now retrace those losses in later contracts. Packers were again aggressive as they needed to purchase hogs and were willing to pay more for them. With strong buying the past two days, they are expected to be less aggressive Thursday, likely bidding lower. Cutouts showed some strength with a gain of $1.00. Weekly export sales may be key to providing further support under the market after the washout Tuesday. Saturday slaughter is estimated at 150,000 head.

	BULL SIDE		BEAR SIDE
1)	Higher cash trade should support futures. Packers will need to keep up with demand and will pay higher money to do it.	1)	Live cattle futures may already have higher cash factored in, which may limit further gains.
2)	Slaughter pace continues to run strong with cattle needed to keep up with chain speed. Packers cannot afford to hold out and risk not having sufficient cattle on hand.	2)	Weak export sales may increase the concern over slowing international demand and the potential for increasing domestic supplies.
3)	The sharp decline in hog futures Tuesday seems to have been an aberration with futures likely regaining those losses.	3)	Pork cutouts will need to see consistent strength in order to improve packer margins or prices will struggle.
4)	Strong weekly export sales would provide good support to move hog futures back into an uptrend.	4)	The technical damage that has been done to the market may be difficult to overcome anytime soon.

Cattle Market Snapshot

Drivers for the cattle industry include liquidations, higher feedlot placements and favorable prices.

• Widespread liquidations will create tailwinds for cattle and beef prices. Producers who were able to retain their herd will benefit from higher prices in 2023. Those who liquidated may lack the necessary herd size to capitalize on favorable prices while paying disproportionately higher prices to rebuild their herds. 
• Cattle sales prices were favorable during the summer. 

12-Month Profitability Outlook

Northwest FCS’ 12-month outlook for cattle suggest slightly profitable returns. Drought in major cattle producing areas has caused widespread liquidation and feedlot inventories set records twice throughout the summer. A smaller cattle herd and strong demand supports higher cattle and beef prices in 2023. 

Northwest Producer Outlook

Cattle sales in the Northwest were favorable with producers receiving between $1,250 and $1,500 per head. In areas with unfavorable pasture conditions for fall grazing, producers had to ship cattle 30 to 45 days earlier than normal. Calve sales weights have been lighter because of the shortened grazing period; however, prices for these cattle remained favorable. While strong sales prices are always valued, producers need cattle prices to remain elevated to sustain profitability as cow calf margins have been squeezed by soaring production costs.

The Northwest has seen a reduction in cattle herd size. Idaho, Montana, Oregon and Washington have collectively decreased their herds by 252,000 cows in the past five years, averaging a 2.3% decrease in herd size annually. This reflects a larger national trend.

With reductions in cattle herds, it will likely take two to three years for producers to rebuild inventory. Producers rebuilding their herd will lose out on higher prices and pay more than the price they received to buy back bred heifers. A smaller national herd supports strong cattle prices in 2023. While producers will make more money on a per head basis, those who liquidate will need to sell fewer calves to build up inventories resulting in overall lower sales. The quickest way to rebuild herds is by purchasing bred heifers. Strong demand across the country will drive 

Cattle sales in the Northwest were favorable with producers receiving between $1250 and $1500 per head. In areas with unfavorable pasture conditions for fall grazing, producers had to ship cattle 30 to 45 days earlier than normal. Calve sales weights have been lighter because of the shortened grazing period; however, prices for these cattle remained favorable. While strong sales prices are always valued, producers need cattle prices to remain elevated to sustain profitability as cow calf margins have been squeezed by soaring production costs.

The Northwest has seen a reduction in cattle herd size. Idaho, Montana, Oregon and Washington have collectively decreased their herds by 252,000 cows in the past five years, averaging a 2.3% decrease in herd size annually. This reflects a larger national trend.

With reductions in cattle herds, it will likely take two to three years for producers to rebuild inventory. Producers rebuilding their herd will lose out on higher prices and pay more than the price they received to buy back bred heifers. A smaller national herd supports strong cattle prices in 2023. While producers will make more money on a per head basis, those who liquidate will need to sell fewer calves to build up inventories resulting in overall lower sales. The quickest way to rebuild herds is by purchasing bred heifers. Strong demand across the country will drive bred heifer prices up. Producers may pay upwards of double the price they received when they sold cattle during the droughts in 2021.

Pasture conditions varied in the Northwest depending on rainfall and access to irrigation water. For those with irrigation or water, pasture conditions look good.  Where insufficient rain was received, producers have turned cattle out to graze on grass-hay fields due to shortage of other grasses. Reductions in national cattle herds will soften domestic demand for feeder quality hay in the near term. Northwest producers have experienced some relief with lower hay prices, although overall trade has been limited. 

In Montana, drought lingered with eastern Montana facing 90°F highs into the last week of September. Pasture conditions suffered from prolonged heat and grasshoppers. By mid-September, 48% of Montana’s pastures are in poor or very poor condition. Compared to the widespread drought in 2021, Montana pasture conditions have improved with a 50% yearly reduction in acres facing moderate drought or greater. No matter the improvement, multiple years of drought have severely impacted pasture ground. Producers lacking good pasture conditions for fall grazing will need to ship calves earlier than normal.   

In Oregon, pastures are also in less-than-ideal condition with 48% in poor or very poor condition, although this is largely region dependent. Eastern Oregon has favorable grass and hay production while Central Oregon is experiencing their second consecutive year of extreme drought.  Those without water are looking to ship cows right away and hoping for better winter weather conditions to replenish pastures.  

Beef Market Fundamentals

Demand

Cattle markets have been favorable with strong beef demand and sales unaffected by rising retail prices. Even with noticeable increases in meat prices, up 3.4% year over year, consumers have not cut back on beef consumption. Record beef exports in July were unaffected by the strengthening U.S. dollar.  

Declines in the national cattle herd will place further upward pressure on prices. Beef prices are forecasted to increase by 9.4% in 2023. So far, beef sales have been unaffected by price increases. However, declines in consumer purchases, record low consumer sentiment, and potential for a recession could cause headwinds for domestic beef demand. The silver lining is estimated reductions in beef production are set to outweigh cutbacks in beef consumption. The USDA forecasts beef consumption in 2023 will reach its lowest level since 2015. Even the highest projection of a 5-lbs. per person cutback would be less than the expected beef supply reduction.

Beyond domestic demand, July had record beef exports fueled by growth in Asian markets and strong international demand. In the third quarter, the Livestock Marketing Information Center projects that U.S. beef exports will be 915 million lbs. For the fourth quarter of 2022, U.S. beef exports are projected at 860 million lbs. If these projections hold, both will set quarterly export records amid the U.S. dollar reaching 20-year highs.

Total beef exports for the first six months of 2022 increased by 133% from last year. China led export growth purchasing 373.5 million lbs. of beef, a 91.6 million increase from the same period in 2021. Growth in the Chinese market over the last two years has been accelerated by the U.S.-China Trade Agreement. Exports to Japan and South Korea also up 6.2% and 12.6% respectively year over year.

Demand is working in favor of cattle producers. Consumer demand has been strong, unaffected by higher prices. The U.S. had record exports in 2022 and record trade will likely remain despite a strengthening dollar. Smaller cattle supply will be the limiting factor in 2023, supporting higher beef prices while constraining domestic beef consumption and exports.   

Supply

Supply is tightening due to increases in cattle liquidation from poor pasture and forage conditions. Cattle in feedlots on August 1 reached 11.2 million head. This is the second highest reported monthly number of cattle waiting for slaughter in 25 years. The record for the most cattle in feedlots was set in June of this year at 11.8 million head. The final week of August set a record for the most cattle slaughtered in a week. U.S. beef production forecasts for 2022 have been raised on higher feedlot inventories to 28 billion lbs., up 500 million lbs. from 2021.  

Beef in cold storage set a record at 515.6 million lbs., up 24% year over year. For the Pacific region, boneless beef and beef cuts in cold storage rose 27% and 19%, respectively, from August 2022. With a record number of cattle on feed, cold storage stocks will continue to rise throughout the end of the year. In 2023, the small domestic herd will require greater reliance on cold storage inventories to meet demand. 

Total Frozen Beef in Cold Storage, 2019-2022

Expensive hay prices and poor forage conditions have forced many producers to liquidate. Of the five largest cattle producing states (Texas, Oklahoma, Missouri, Nebraska and South Dakota respectively), four face significant droughts that depleted hay production. South Dakota was the one state with an annual increase in hay production after recovering from drought in 2021. The Southern Plains had the greatest deterioration with more than 50% of their pastures in poor or very poor conditions. Feedlots in this region have increased slaughter rates by 31% year over year. The last time the Southern Plains had major drought was 2011. Compared to 2011, this region now has 0.4 million fewer cows and saw a modest increase in cattle slaughtered.

Many states, especially in the Southern Plains region, have liquidated their cattle herds due to higher feed costs and difficulties securing hay. The reduction in the national cattle herd will likely take two to three years to rebuild. 

Increases in national cattle in feedlots will reduce cattle supplies and beef production will decline in 2023. A smaller national herd will support higher beef prices. Producers that were able to retain cattle will benefit from higher prices and lower production cost (softening hay prices) resulting in greater earnings.   

Wednesday Closing Livestock Market Update - Stronger Tones Strengthen the Complex

GENERAL COMMENTS:

It was a strength-gaining day for the livestock complex as the three livestock markets closed higher and saw excellent support in the cash hog market, and even though it was mildly tested, the cash cattle that did sell sold higher. Hog prices closed higher on the Daily Direct Afternoon Hog Report, up $0.22 with a weighted average of $92.99 on 18,469 head. December corn is up 1 cent per bushel and December soybean meal is down $3.00. The Dow Jones Industrial Average is down 42.45 points.

LIVE CATTLE:

It wasn't a day where price jumps $3.00 to $4.00 higher and everyone hoot and hollers that the market accomplished something, but in the same sense, the market quietly added position to its price points and gained leverage in the cash market, which is worthy of some spirited noise, October live cattle closed $0.47 higher at $144.67, December live cattle closed $0.42 higher at $147.92 and February live cattle closed $0.50 higher at $151.75. The cash cattle market saw some light trade develop in Eastern Nebraska at $230, which is $1.00 higher than last week's weighted average. A few bids were offered in the South (mainly at $143.00) but with feedlot's asking prices firm at $145, Southern feedlot managers let the bids roll by and are waiting for better offers. Packers are keenly aware that fed cattle supplies are only going to become thinner in the months ahead, which is why they're aggressively buying now to pad and protect themselves against the rally that the cash cattle market could sport later this year. Feedlots have pressed their heels in the ground and seem uninterested in stomaching lower bids. More money will need to be offered if packers are going to get many cattle bought this week. 

Wednesday's slaughter is estimated at 128,000 head, 1,000 head more than a week ago and 7,000 head more than a year ago.

Boxed beef prices closed lower: choice down $0.98 ($247.06) and select down $2.69 ($219.22) with a movement of 169 loads (99.91 loads of choice, 41.57 loads of select, 12.00 loads of trim and 15.91 loads of ground beef). The choice/select spread sits at $27.84.

THURSDAY'S CASH CATTLE CALL: Higher. Given that feedlots aren't taking the initial offers packers have presented, it's likely that packers will up their bids by at least a $1.00 or $2.00 to get cattle bought.

FEEDER CATTLE:

At midday, the feeder cattle complex was trading higher but doing so while having to keep a close eye the corn complex as it was trading $0.03 to $0.04 higher. As the afternoon's hours ticked by, the corn complex closed with only a one- to two-penny gain seen in its nearby contracts, which allowed for feeders to push $1.00 to $2.00 higher through the day's end. October feeders closed $1.90 higher at $176.55, November feeders closed $2.12 higher at $177.32 and January feeders closed $2.00 higher at $178.07. The tone throughout the countryside is supportive as buyers are seeming more interested in both feeders and calves. Given the drought related pressures that have forced producers into marketing their cattle earlier than normal, one must wonder if this year's fall run (which is usually the last week of September through the month of October) will get as many receipts as last year. At OKC West Livestock Auction in El Reno, Oklahoma, compared to last week, on a run of 7,084 head, feeder steers sold steady to $3.00 higher. Feeder heifers traded $1.00 to $3.00 higher. Demand was moderate to good especially for heavier weight cattle. Steer and heifer calves traded $6.00 to $9.00 lower. Feeder cattle supply over 600 pounds was 64%. The CME Feeder Cattle Index for Oct. 4: down $0.09, $175.58.

LEAN HOGS:

Tuesday was an absolute bust for the lean hog market from a technical sense, but Wednesday did some heavy lifting and helped prop the market back up. December lean hogs closed $2.07 higher at $76.50, February lean hogs closed $1.60 higher at $78.87 and April lean hogs closed $1.22 higher at $84.52. Wednesday's market had little to no technical pressure and ample support fundamentally. It was impressive to see the cash market trade as strongly as it did given that Tuesday's market saw a hefty $10.17 jump in prices and on 20,744 head trade, but obviously packers needed the hogs as they bought 18,469 head more in Wednesday's market and were even willing to pay more money for them. The volatile nature of the pork cutout value is tied directly right now to the swings in belly prices. Bellies up Monday, pork cutout value up Monday too. Bellies down Tuesday, pork cutout values down Tuesday too. And again, in Wednesday's market, bellies up on Wednesday, pork cutout values up too. Heading into Thursday's market pork producers are hopeful that the market receives another favorable export report. Pork cutouts totaled 282.02 loads with 241.43 loads of pork cuts and 40.59 loads of trim. Pork cutout values: up $1.00, $99.29. Wednesday's slaughter is estimated at 487,000 head, 3,000 head more than a week ago and 7,000 head more than a year ago. The CME Lean Hog Index for Oct. 3: down $0.89, $93.44.

­­­­­THURSDAY'S CASH HOG CALL: Lower. Given that packers have been aggressively buying over the last two trading days, it's unlikely that they pay much attention to the market come Thursday as they've likely fulfilled their needs for the week.