Early livestock commentary-Robin Fuller
Cattle blasted as much as $4.00 higher this past week as packers ran over the top of each with their bidding. Trade in the south ranged from $107.00 to $109.00, with a few cattle trading as high as $111.00 in parts of Kansas. Trade in the north came at $111.00-$112.00 live and $178-$180 dressed. The sharply higher trade came as a big surprise to many in the market, since packers have now completely bid away their strong kill/cut margins. Unless the beef remains unseasonably strong this week, we think packers will find their senses and try to save some money. Asking prices start the week at $113.00 or better in the south, as feedlots try to extend the firm pricing another week. While we had thought the $104.00 level would hold the cash market at the lows, we don't think this sharp rally will hold into July.
The choice cutout was up $0.78 at $172.94 Friday night, with the select up $1.19 at $168.27. The beef cutouts rallied during the week, but still averaged below the previous week as is seasonally normal. Most in the industry, however, had expected a sizable ($2.00-$4.00) decline in cutout values this week, and the fact that cutouts averaged higher this Friday than they did last Friday was a big deal. We do note this is the wrong time of year for packers to try for a big rally in beef prices. Though the market did rally in 2008, we view that market as an illogical "last bull frenzy" ahead of the economic collapse in the fall. Since slaughter increased to 688 thsd head last week, the market will be dealing with quite a bit more beef to absorb. We think packers will have a hard time moving this kind of volume at higher prices.
Friday's Cattle on Feed Report was bullish compared to trade estimates. Placements were at the low end of pre-report guesses, and marketings exceeded the high end of the range. The smaller placement figure ended a 9 month run of mostly larger than year ago placements (one month was unchanged) that had many in the industry scratching their heads. Placements are down sharply through the first half of June as well, and it appears the industry has finally "run out" of feeder cattle. We suspect that record values of feed also are finally causing some pull back in feeder cattle demand.
Hog calls are mostly steady this morning though some higher bids are expected in some areas where packers still need hogs for the end of the week. By our calculations, there are only enough hogs for packers to comfortably slaughter around 1.95 mill head, maybe even less. Unless they cut back on slaughter, prices will continue to climb. We hear packers are considering slaughter cuts, with one already implementing reduced hours.
The pork cutout gained $2.96 Friday night on renewed strength in fresh pork. Bone-in loins were quoted 3-7 cents higher. All other cuts were not established by the USDA. Pork butts shot back up over $1.20/lb this week on renewed buying from S. Korea as well as some better domestic interest. By the end of the week, domestic buyers were feeling a little sticker shock, and we could see the loin and butt markets stall this week. Processing items also firmed on the smaller production and a little better demand in the domestic market. If slaughter declines to the 1.95 mil level over the next few weeks, as it should, we think hams will move back up into the low 80's. Bellies could rally into the mid $1.20's. If the recent decline in belly prices has spurred some features for BLT season, we could see a further rally in bellies prices this summer.