Given the lateness of the hour, it's difficult
to say whether cattle buyers will break up the long holiday weekend by
returning this morning to own more steers and heifers. Trade volume
total through Wednesday looked no bigger than moderate. Yet it's
possible that most packers have enough inventory in tow to get them into
new week if that's the day they want to play it. We should see at least
a few clean-up deals here and there. Look for opening bids around $119
in the South and $190 in the North. The balance of showlists are
probably priced around $120 in the South and $192 plus in the North.
Live and feeder futures seem set to open moderately higher, supported by
follow-through and recent cash strength.
The cash hog trade should resume this morning
with basically steady bids. Between large Saturday kill plans close to
346,000 head and the need for Monday starters, we suspect there will be
enough late week buying interest to lend the country trade a steady/firm
undertone. Lean futures are staged to open moderately higher with the
help of residual buying interest, short covering, and the higher cut-out
quoted on Wednesday.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cattle futures closed sharply higher on Tuesday, removing much of the bearish sting from Monday's post-on feed report sell-off. Feb and April renewed enough buying interest to close back above their 40-day moving averages. | 1) | Though impressive in terms of pre-holiday fireworks, Wednesday's surge in cattle futures may have been little more that oversold charts correcting. While spot Dec live closed near its 40-day moving average, tough overhead resistance exists in the $120-$120.50 area, which Dec approached on Wednesday but could not penetrate. |
| 2) | The cold storage report released late Wednesday morning estimated the late October stockpile of frozen beef to total 503.9 million pounds 5 percent smaller than the year before. With Jan-Oct commercial beef production up 4 percent over 2016, such a drawdown is a decent sign of domestic and foreign demand. Reacting to firm packer spending in feedlot country, cattle futures once again closed sharply higher on Wednesday. Premiums in February and April continue to increase, to levels wider than seen in the last five years. | 2) | Furthermore, given how open interest has been sinking this week, the pre Thanksgiving rally in live and feeder contracts was based almost entirely on short covering. |
| 3) | Nearby lean hogs futures jumped to a 2-week high on Friday with late year bulls cheered by the possibility of smaller than expected live supplies through the balance of 2017 as well as the maintenance of strong pork demand. | 3) | For the week ending November 18, U.S. hatcheries set 226 million eggs in incubators, up 3 percent from a year ago. At the same time, chicks placed in the United States numbered 177 million chicks, up 3 percent from 2016. |
| 4) | Frozen pork stores as of October 31 totaled 597.3 million pounds, 3 percent below the prior month. Such a reduction during record hog slaughter and production obviously speaks well of demand. | 4) | Frozen chicken supplies at the end of last month jumped to 868.3 million pounds, 12 percent greater than the fall of 2016 and the largest stockpile in more than 20 years. |
CATTLE: (CanFax) -- The Canadian beef cow herd
remained steady on July 1, 2017. The beef cow culling rate is in line
with the long-term average, but heifer slaughter is up. The feedlot
sector saw impressive profitability in the first half of the year but is
also facing larger price risks due to swings in fed cattle prices. Good
feedlot profitability has been supporting the feeder market. Feeder
prices have been generally running above year-ago levels in the second
and third quarter. While cow-calf profitability remains positive on
average, it does not appear to be encouraging any substantial heifer
retention.
Canadian cattle inventories on July 1, 2017, were steady at 12.95 million head, marking the sixth year of consolidation.
Beef cow inventories were up 0.5 per cent at
3.797 million head. This is the second year with a slight increase,
following the 0.6 per cent increase last July. Regionally, beef cow
numbers were up in the Atlantic provinces (+4.6 per cent), Manitoba
(+2.8 per cent), Saskatchewan (+2.2 per cent), and Ontario (+1.6 per
cent); but down in Alberta (-0.5 per cent), Quebec (3.8 per cent), and
British Columbia (-3.9 per cent). Some of the rebound in Ontario may be a
result of improved pasture conditions after dry conditions last summer.
Beef heifers for replacement were up 0.6 per
cent at 673,200 head, to be the highest since 2006 and up 5.0 per cent
from the five-year average. Heifer retention was up in the Atlantic
provinces (+4.8 per cent), Ontario (+4.4 per cent), Manitoba (+1.6 per
cent), Saskatchewan (+1.3 per cent), and Quebec (+1.4 per cent), but
down in Alberta (0.5 per cent) and British Columbia (-3.1 per cent).
Breeding heifer numbers for July 2015 and 2016 were both revised to be
up 4.3 per cent. The revisions show that breeding heifer inventories
have been increasing since 2015, with a 4.0 per cent per year growth
rate, which slowed down to 0.6 per cent in 2017.
Slaughter heifer numbers were the only category
that declined. They were down 5.0 per cent to one million head, to be
the lowest level since 1999. The July 1, 2016 slaughter heifer
inventories were revised 12 per cent or 147,000 head lower from 1.20
million head to 1.06 million head.
The number of calves was up marginally by 0.2
per cent at 4.21 million head. A steady calf crop and a 43 per cent or
104,000-head decline in feeder cattle exports from July 2016 to June
2017 is anticipated to increase fed cattle marketings in 2018. According
to the Canfax Cattle on Feed report, Alberta and Saskatchewan feedlot
placements from January to August this year are 19 per cent higher than
2016 and 8.0 per cent higher than the five-year average. The September 1
on-feed inventories were up 5.0 per cent from 2016 but only slightly
higher than the five-year average.
Dairy cow inventories were up 1.6 per cent to
945,000 head, back to the 2014 level. For the last 30 years, dairy cows
have decreased on average 2.0 per cent per year as productivity
advancements have resulted in fewer cows needed to fill the quota. The
increase in inventories was due to additional quota being made available
over the last several years. The implication is potentially larger
supplies of dairy calves for finishing in the future if this trend
continues.
HOGS: (agrimoney) -- Corn is the top bullish bet
among agricultural commodities for 2018, followed by lean hogs,
Rabobank said, in a briefing which cautioned over the potential for
market influences from La Nina to freight.
The bank, in its annual briefing on year-ahead
price forecasts, said that Chicago corn futures were in 2018-19 "likely
to spend considerably more time above $4.00 a bushel" than during the
previous two seasons.
The forecast reflected an expectation of world
corn stocks falling below 200m tonnes in 2018-19 for the first time in
five years, "allowing for some price support", although most of the
decline will be recorded in China, whose inventories are less sensitive
for world prices.
The outlook sees corn sowings in the US, the top
producer, easing by 500,000 acres to 89.9m acres, losing out to spring
wheat, which is seen being favoured by current price dynamics.
Acres are seen falling in Argentina too, as
growers switch to soybeans, although Brazilian area will rebound by
400,000 hectares from levels constrained to 17m hectares this year by
dryness, including the knock-on effects on safrinha corn sowings of late
soybean seedings.
In Chicago lean hogs, the bank forecast prices
recovering from an average of 59 cents a pound in the current quarter to
78 cents a pound in the April-to-July period of next year, supported by
strong demand from both the US and export markets.
"The recent strength in US domestic demand
should carry into 2018, as pork remains an important traffic driver in a
highly competitive retail market," the bank said, forecasting exports
too gaining 3.7% next year thanks to "high demand in the key
destinations of Mexico, China and Japan".
The upbeat forecast, which allowed for 3.8%
growth in US hog production next year, contrasted with a downbeat
outlook on live cattle futures, which Rabobank rated as its second most
bearish bet, behind palm oil.
While forecasting a drop in US beef production
growth next year to 3%, from 4% this year, the bank flagged "risks"
including "any indications of a slowing economy", dollar strength, and
"uncertainty" over US trade agreements.
