CME: Markets Wary of Hog Supply Outlook

US - Livestock futures pulled back on Monday as market participants found few bullish news in the USDA cattle on feed report and the weekly production numbers, write Steve Meyer and Len Steiner.
calendar icon 22 September 2009
clock icon 3 minute read

Markets remain wary of the outlook for hog supplies in Q4 and the weekly hog slaughter data did little to support nearby hog futures. USDA reported that hog slaughter for the week ending 19 September was 2.310 million head, 0.7 per cent lower than a year ago but still some 5.9 per cent higher than the five year average. This was the second largest slaughter week for this particular time of the year and when one accounts for the much heavier hog carcass weights, overall pork output for the week remained at record levels (for this time of year).

Total pork production for the week was 462.9 million pounds, 0.2 per cent higher than a year ago and 7.9 per cent higher than the five year average. USDA will publish the results of its quarterly survey of hog operations on 25 September and before the release we will provide a more detailed view of the market expectations for this report. Clearly key will be the pace of breeding herd liquidation and the impact that it has had on farrowings this summer.

It is important to note that sow slaughter only recently has edged above year ago levels so the liquidation picture remains more muddled that it was earlier in the year. The cold storage report also will be viewed carefully, especially given the expectation for another quarter of big pork supplies. Exports appear to be on the mend but they need to be excellent in order to absorb the seasonally large hog numbers.

Cattle supplies last week were below year ago levels, and this was due to a reduction in the number of all classes of cattle. Cow slaughter was lower for the week as the dairy herd retirement program is coming to an end.

Based on preliminary USDA data, total US cow and bull slaughter last week was 133,000 head, 6.3 per cent lower than a year ago. Steer and heifer slaughter was estimated at 515,000 head, 5.3 per cent lower than last year. Packers continue to limit the number of cattle they process, last week they had two days in which the number of cattle processed was less than 100,000 head. With feedlot supplies edging higher thanks to larger placements, packers could further lower their bids and pressure overall cattle prices in Q4.

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