Meats Outlook- An Excerpt from CRB'S Futures Market Service
LIVE CATTLE
Oct cattle prices corrected down to a 2-week low from their recent contract and 1-3/4 year nearest-futures high. Bearish factors include (1) increased supplies after US meatpackers processed 678,000 cattle in the week ended Aug 27, up +1.6% w/w , and (2) concern a slowing economy may reduce beef demand. Bullish factors included (1) US beef-export sales in the four weeks ended Aug 26 up +14% y/y, (2) the Aug Cattle-on Feed report that showed cattle feedlot purchases down 5.9% y/y, which signals tighter inventories of beef into next year, and (3) the Aug Cold Storage report that showed US beef stockpiles at 388 mln lbs on July 31, down nearly 13% from a year earlier.
Fundamental Outlook—Bull Market Correction—Cattle fundamentals remain generally supportive for the medium-term due to relatively tight supplies with the US feedlot herd as of July 1 at 10.070 mln head, just above a 6-year low. Also, total beef in cold storage fell to a 5-year low of 364 mln lbs in May before rising slightly in June/July. Cheap feed costs may spark herd rebuilding, but cattle on feed in July dropped to 95% of the year-earlier level.
LEAN HOGS
Oct hog prices slipped to a 3-week low and are near the bottom of their recent 3-month consolidation range below May’s 14-year high. Bearish factors include (1) speculation that retail pork demand will slow after wholesale-pork prices surged to 96.74 cents a pound, the highest since the USDA began keeping comparable data in 1997, and (2) speculation that hog supplies may increase and pork demand will suffer after the Labor Day holiday. Bullish factors include (1) the 7.9% rise in US pork exports in 1H-2010, (2) reduced supplies after meatpackers processed 2.11 mln hogs for the week ended Aug 27, down -4.2% from a year earlier, and (3) the USDA’s Aug 12 estimate that US pork exports this year may increase +4.6% y/y to 4.675 bln lbs.
Fundamental Outlook—Bull Market Correction —Hog fundamentals are supportive due to shrinking herds with the June 25 quarterly Hogs & Pigs report showing a 3.6% y/y decline in the US hog inventory to 64.4 million hogs as of June 1 and a -3.0% y/y drop in the US hog-breeding herd to 5.788 mln sows, just above the recent record low of 5.76 mln sows which is the lowest since USDA data began in 1988.
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