Cattle futures were steady to higher, in large part reflecting tight beef supplies coming out of the weekend and the expectation that cattle slaughter will remain well below year ago levels in the next few weeks. Feedlots did not appear anxious to take initial bids and were asking around $128-129/cwt for fed cattle. Cow supplies also remain well below year ago levels. The charts to the right illustrate the seasonal shift that takes place in Q4 with regard to cattle slaughter.

Normally we see a notable decline in the number of feedlot cattle going to slaughter in Q4. On the other hand, cow slaughter picks up as cow-calf operators send to market cows they do not wish to carry over the winter months. The latest USDA data showed that last week steer and heifer slaughter was about 492,000 head, 4% lower than the same week a year ago. Cow and bull slaughter for the same period was reported to be around 149,000 head, down 6% from last year. Market participants we contacted indicated that there were some disruptions due to the storm. Processors along the East Coast either operated with reduced hours or shut down completely. There was some talk last week that with the storm approaching, some processors would opt to get deliveries early. It does not look that happened and for good reason. If a plant expects to be without power for possibly an extended period of time, it makes no sense to get deliveries at all, the less raw material you have to deal with, the better. On Monday, the main headache was trucking, as it was almost impossible to get anything booked to go to the East Coast. States like Connecticut completely shut down their highway systems, stranding truckers at border fueling stations. It will take a few days to sort out the effects of the disruption but chances are that the storm will have some short term impact on meat protein demand. This is particularly the case at the foodservice level. Lost foot traffic and sales will be hard to make up, especially in the current economic environment. As for retailers, the storm likely represents a shift in sales rather than lost sales altogether. Consumers will probably deplete home refrigerated stocks and some product may be thrown away. In any case, following such disasters there is a rush to the retail store to replenish home stocks, resulting in higher sales in the following weeks.

Lean hog futures, on the other hand, were down as much as 110 points for the December contract and down 120 points for the February contract. Hog supplies remain heavy and market participants clearly are concerned that the recent storm will make it more difficult to clean up the market. Hog slaughter last week was 2.379 million head, 3.1% larger than a year ago. Since September 1, hog slaughter has averaged about 3.4% above year ago levels. Hog weights also have been trending higher, as they seasonally do at this time of year, although they are below last year’s record pace. Pork production last week was again around 483 million pounds, 1.4% higher than last year. Seasonally higher pork supplies, heavy freezer stocks and now a monster Hurricane affecting over 60 million consumers all have combined to pressure hog prices in the near term.