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Higher Feed Usage Drops Corn Stocks Figure

Livestock operators are probably not surprised.

Today's USDA report was a slight bullish surprise. Trade expected quarterly stocks on hand to be at 2.353 billion bushels and today's number came in at 2.295.

A quick explanation for this lower stocks number would be a better than expected feed and residual category. This might not come as a surprise to livestock feeders with the additional numbers we have had this year along with the ease of feeding low cost grain.

We should now look for trade to quickly turn attention forward to the October 12th Supply and Demand report. Early thoughts are for a slight yield increase, again, but with this possibly being the last needed increase. If true, that would give buyers a reason to stand in with even larger support having the feeling that the most bearish news would be behind this market and now focus could turn to either sideways or positive news until January. Looking forward, we can expect slightly better supportive trade with bullish excitement to remain limited at least until after the Oct 12th report.

Bulls

  • Quarterly stocks came in at 2.295 when trade expected 2.353. While stocks were not likely enough to start a rally they should certainly cause better support on pullbacks
  • Bulls will hope that even slightly lower stocks will start to spark at least some amount of improved exports

Bears

  • Most in trade are expecting another small yield increase in October which will cause selling to be seen on bounces
  • Next chart resistance is 362 which will likely see active selling at that level
  • Harvest should continue at least at a moderate pace and with solid yield reports harvest pressure should continue

 
 

Lean Hog Commentary

 

The 1 pm Estimated Slaughter report showed USDA's weekly packer survey counted 2.534 million head for this week's packer run. That was right next to our 2.530 estimate discussed this morning. This is the largest kill of the year and the largest since last year's 2.543 record from the last week of November (the record). This week's kill ran 3.3% over last year. That is near the 3.1% larger kill seen over the past four weeks. USDA's pork production estimate came to 532.2 million lbs. That is right next to last year's 539.6 record. We still have two to six weeks before the year's largest weekly run is posted.

Through Thursday, cash hogs were down 1.12 to a 47.77 price via the Iowa/Minnesota. That is one of the smallest weekly declines posted in some time. Some would suggest that is the start of a bottom. On the negative end, current prices are below last year's 49.69 by 4%. Bulls are hoping the coming two months of trading don't turn out like last year. Last year we traded down to 40.55 on that same cash hog metric in the month of November. Wholesale pork was down 0.25 for the week through Thursday. It is also 4% under last year.

At one point today December lean hog futures rallied 2.90. Though it came off those higher later in the day, there was a firmer close. We can't say there was anything suggesting near limit up trade in yesterday afternoon's Hogs and Pigs report. That report was almost all neutral. Instead, we would suggest today's move was generally an attempt to exit positions for the month-end.

USDA's quarterly Hogs and Pigs report was neutral. You could argue that the first two heavy weight categories in the Kept for Marketings would seem bearish but it is likely no on in the industry really believes those numbers at 3.9% over last year. The message with this report is that expansion is still continuing but at a lower pace for 2018 production. This year's record hog production will be surpassed again next year (no surprise to anyone).

Monday's Lean Hog Index, the measure of nationwide cash hog pricing that futures are settled to, will run 54.84. That is good for cash hog trading through Thursday. December hog futures are now trading at a premium to that price. We would suspect this market expects the normal seasonal drop in cash hog prices to end next month instead of the norm in December. We are not quite sure of that. Guessing the exact day or week of the cash hog low, in the middle of the coming record hog kill period, is not something done with high confidence. At this time our December expiration price is $56. Rich Nelson

 
 
Rich Nelson
Allendale Inc.
815-578-6161
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