CME: Livestock Futures Lower On Thursday
US - Livestock futures were lower across the board on Thursday as market participants remain wary of a number of bearish signals, write Steve Meyer and Len Steiner. On the macro front, slowing global commodity
demand remains a concern, especially with China data showing
economy there has slowed down considerably compared to the torrid pace of last year. China growth was up 9.2% in 2011 and Chinese official forecast is for 7.5% this year. Some think real growth
in China is even slower judging from alternative indicators such as
rail cargo volume and electricity consumption. The situation in
Europe also remains fluid, with the Eurozone expected to contract
in 2012. Grain markets have turned lower, with corn futures down
almost $1/bushel since their peak in mid August. With the corn
supply numbers now well established, the market is focusing increasingly on the demand front. Feed demand is expected to pull
back as expected, with egg sets declining to the lowest level since
1994, cattle placements in September down 19% and hog producers
trying to sell hogs earlier than normal and retaining fewer gilts for
sow replacement. Corn export data also shows a notable decline
from last year. In large part this is due to increased sales from
South America. The latest USDA report had Argentina+Brazil
corn exports at about the same level as a year ago (34.5 million
MT), while US corn exports for 2012/13 are estimated down 25%
from last year (29.2 million MT). Some believe US corn exports
could be down even more. For wk ending Oct 18, US weekly export
corn sales were down 57% from last year, with cumulative sales for
the marketing year down 48%. Corn use for ethanol also continues
to track behind projections. In all, the spike in corn prices this
past summer is having the intended effect, rationing out demand
until the new corn crop is planted and harvested.
Hog slaughter continues to track about 3.2% above year
ago levels. Despite the relatively heavy slaughter volumes, hog and
pork prices have rebounded from the depressed levels of early September (see chart). We think this reflects some short term changes
in retail ordering patterns. Dramatically lower pork prices provided opportunistic retailers with a high margin protein item at a time
when beef prices are nearing all time record highs. Still, market
participants expect that once the wave of buying subsides, prices
should be seasonally lower into December.
An item to watch are
hams. Normally ham prices hit their seasonal highs in late October
and early November but then drift lower in December and holiday
buying ends. Ham inventories are particularly high and as end
users deplete them, this could weight more than usual on ham
prices this December. Belly prices remain strong and will likely
continue to track higher, in part because the lack of any other
good hedging mechanisms has end users relying more on building
up their inventories. As for next year, the market is tracking
almost exactly with 2011 price levels as pork supplies are expected to pull back and high meat protein prices underpin pork
demand.
