Much of the conversation in the market last week focused on the erratic trading in the grain complex. Most corn futures contracts closed limit down on Friday as large market participants sought to lighten their positions following a USDA report which showed that 1 September corn stocks were much higher than private estimates. The pullback in corn, beans and wheat spilled over in the livestock complex, with most of the declines coming in the Dec - Apr period. Feeder cattle futures, on the other hand, were buoyed by the lower grain prices but gains were limited given the clouded outlook for beef demand going into next year.

The weekly production data showed a continuation of some trends that we have seen developing for much of the year. US cattle slaughter for the week was reported at 656,000 head, 2.6 per cent lower than a year ago. Both grain fed and grass fed cattle numbers are up compared to a year ago. The chart shows that US cow slaughter is currently running above year ago levels. Normally we see cow slaughter increase by the second week of October and into November. However, the dairy cow liquidation in early August and high cow meat prices have encouraged producers to keep bringing cows to market. The actual cow slaughter data is published with a two week lag but we estimate that cow slaughter in the last two weeks (two red dots on the chart) has held at around 130,000 and 125,000 head, respectively. Last year, weekly cow slaughter at this time of year was well below 120,000 head. Will the recent decline in the price of lean cow grinding beef as well as the high numbers brought to market in August and September limit the normal fall cow run? It is a question that many market participants would like to get an answer for. As we mentioned in our report on Friday, there is currently a significant shortage of imported grinding beef in the pipeline and any cutbacks to US domestic cow slaughter could have a significant impact on ground beef supplies and prices. This may not be a problem in November and December as retailers are busy featuring holiday items. It will be a big issue in January once retail features shift from hams and turkeys into a more balanced mix.

Hog slaughter continues to run well below year ago levels. For the week, total hog slaughter was down 6.2 per cent compared to a year ago and with hog weighs also running light, total pork production was down almost 7 per cent compared to last year. The lower output levels remain supportive of pork prices overall. One pork item that was very strong in September was pork bellies. But seasonality seems to be catching up with this item and prices on Friday were down as much as 30 cents. The decline in belly prices was the main contributor to the pullback in cutout values, which on Friday closed at $86.96, down $1.9/cwt from Thursday.