Meats

Livestock prices on Thursday settled mixed: Dec live cattle +0.300 (+0.26%), Dec hogs -1.525 (-2.73%). Dec cattle on Thursday closed higher after wholesale beef prices rose for the first time in the last seven sessions, which spurred short covering in cattle futures. Dec cattle on Wednesday fell to a 3-week low on signs of weak domestic beef demand after wholesale beef prices fell to a 9-1/4 month low. Another negative was the fall in beef packer profit margins to a 1-3/4 month low, which may curb demand for cattle by packers. Dec cattle last Monday rose to a contract high after the new U.S.-Mexico-Canada trade deal was announced, which eased trade concerns and may lead to increased foreign demand for U.S. beef. Foreign demand for U.S. beef remains strong as U.S. Jan-Aug beef exports are up +14.2% y/y at 2.096 bln lbs and the USDA projects U.S. 2018/19 beef exports will climb +2.6% y/y to a record 3.245 bln lbs. Supplies remain ample after the Sep 24 USDA Cold Storage report showed U.S. beef supplies in cold storage rose to a record high for an Aug of 503.449 mln lbs. The USDA reported U.S. Aug commercial beef production rose +1.2% y/y to 2.43 bln lbs. Future beef output may also increase as USDA slaughter data shows 24.948 mln head of cattle processed this year through Oct 6 up +2.6% y/y and the USDA projects U.S. 2018/19 beef production will climb +3.6% y/y to a record 27.973 bln lbs.

The most recent USDA Cattle on Feed report (Sep 21) was negative as it showed cattle on feed as of Sep 1 rose +5.9% y/y to a record for a Sep of 11.125 million head (data from 1996), above expectations of +5.2 y/y. Cattle placements in feedlots during Aug rose +7.4% y/y to 2.07 million head, above expectations of a +5.1% y/y. Cattle marketed for slaughter in Aug rose +0.2% y/y to 1.983 mln head, less than expectations of +0.3%. Last Monday's USDA Cold Storage report was negative as it showed U.S. beef supplies in cold storage in Aug rose +4.0% m/m and +5.6% y/y to 503.449 mln lbs, an August record since data began in 1915.

Dec hog prices on Thursday tumbled to a 3-week low as cash market weakness undercut futures prices after cash hogs dropped to a 2-week low. Another negative was the fall in pork packer profit margins Wednesday to a 2-1/4 month low, which may curb hog demand from packers. Dec hogs had rallied to a 3-1/2 month high last Monday on reduced trade concerns that may boost foreign demand for U.S. pork after the new U.S.-Mexico-Canada trade deal was announced. Weakness in the cash market had been a drag on futures prices through August as cash hog prices plunged to a record low of 36.57 cwt on Aug 31. Nearest-futures (V18) hog prices slumped to 1-3/4 year nearest-futures low on Aug 30 due to retaliatory tariffs from China, Canada and Mexico, which account for 60% of all U.S. pork exports. Abundant supplies amid tepid demand has weighed on hog prices as well as the USDA reported U.S. Aug pork production jumped +4.8% y/y to 2.32 bln pounds, and the USDA projects U.S. 2018/19 pork production will climb +5.2% y/y to a record 27.824 bln lbs. High slaughter rates are also negative for hog prices as USDA slaughter data showed 93.248 mln hogs processed this year through Oct 6, up +2.2% y/y. The Sep 24 USDA Cold Storage report was bearish as it showed overall pork supplies in Aug rose +6.0% m/m and +1.2% y/y to 582.592 mln lbs. Foreign demand for U.S. pork was solid through July with U.S. Jan-Aug pork exports up +6.3% y/y at 3.896 bln lbs and the USDA projects that U.S. 2018/19 pork exports will climb +3.5% y/y to a record 6.2 bln lbs.

The Sep 27 USDA Q3 Hogs & Pigs report was mixed as it showed that the U.S. pig herd as of Sep 1 rose +3.0% y/y to 75.486 mln, below expectations of +3.3%. Sows retained for breeding as of Sep 1 rose +3.5% y/y to 6.33 mln, more than expectations of +2.9%, and hogs marketed for slaughter rose +2.9 y/y to 69.156 million, below expectations of +3.3% y/y. In addition, piglets per litter in Q3 rose +0.7% y/y to 10.72, slightly below expectations of +1.0% y/y, but still a record high for a Q3.