CME: Lean Hogs and Live Cattle Reach Unprecendented Highs

by 5m Editor
4 July 2008, at 8:46am

US - CME's Daily Livestock Report for 3rd July, 2008.

The past two weeks have been historic for CME Group livestock futures with both Lean Hogs and Live Cattle reaching unprecedented highs. Live Cattle futures reached all-time highs the week that ended June 30 with several contracts setting contract-life highs and the weekly contract (top right) reaching $104.70 and closing at $103.80, both record highs. Lean Hogs futures saw the first-ever trades at prices over $100/cwt. carcass last week when June 2009 LH reached $100.25/cwt carcass and closed at $100.20/cwt carcass. LH futures for April 2009 and onward all hit contract life highs on Thursday while more current contracts struggled to find direction coming out of the post-Hogs and Pigs Report selloff.

E-Livestock Volume 7/3/08 7/2/08 6/26/08
LE (E-Live Cattle): 11,154 9,741 8,286
GF (E-Feeder Cattle): 217 617 586
HE (E-Lean Hogs): 9,570 10,609 17,926

The two markets are being driven by MUCH different forces at present, however, with beef markets being driven by current cash market strength (see the July 2 edition of DLR for our take) while deferred hog futures are being driven by expected lower supplies of hogs next year due to cost-induced losses that are expected for much or all of the remainder of 2008.

That’s not to say that pork and hog prices have been too shabby recently. In fact, the pork cutout value has climbed back to $79.77 on weekly slaughter runs that have been 6-10% larger than one year ago and recent slaughter weights that, in spite of higher-cost feed, have actually been HIGHER than last year. That value is only $1.33/cwt below what many still believe could be the seasonal for cutout value the week before Memorial Day. It is truly remarkable that cutout values and cash hog prices remain this high given these supplies but even that good news is not enough to soften the continued rise of feed costs and breakeven costs — which we now peg at around $85/cwt carcass.

Those higher hog prices in mid– to late-2009 depend on a reduction of Canadian and U.S. supplies that is developing rather slowly per last week’s Hogs and Pigs Report. We will know more about Canada’s situation late this month but anecdotal evidence suggests that the reduction of Canada’s sow herd could be speeding up again. Prior to the U.S. Hogs and Pigs Report, 102,000 sows had been enrolled in Canada’s breeding herd buyout program that had a original goal of taking out 150,000 sows. Enrollment is still open through August and some believe last week’s U.S. report will now drive enough sows into the program to reach the specified goal. Statistics Canada added a line to their June 28 Weekly Hog Supply Report ( which shows that 19,487 sows have been slaughtered through the program since April 14. It is our understanding that this is the number of cull sows that have gone to rendering after slaughter. Any animals that went into pork products for food pantries and other feeding programs are still counted in the normal sow slaughter total. That fact makes keeping track of the Canadian program a bit difficult but we will try to monitor is as best we can through the summer.

5m Editor