CME: Small Changes in Lean Hog Futures Contracts During W24

US - Cash fed cattle prices declined sharply last week, daily data reported by USDA’s Agricultural Marketing Service (AMS) Market News Division showed prices declined by $6.00 to $8.00 per cwt. between sales that occurred on Tuesday and trade on Thursday, reports Steiner Consulting Group, DLR Division, Inc.
calendar icon 20 June 2017
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AMS reported nationally that feeder steer and heifer prices dropped by $5.00 to $10.00 per cwt. week-over-week (for the full AMS national summary report see here). Still, both fed and feeder cattle prices were above a year ago. Cash hog prices last week continued to rise and for the first time since late March exceeded year ago levels. The bottom of this page has our weekly cash price and production summary.

Last week, the Live Cattle (fed) futures prices declined with the sharpest drop happening on Wednesday. The June 2017 contract fell $5.51 per cwt. for the week (comparison of weekly averages using the daily closing prices) to its lowest level in four weeks. Week-over-week, the October 2017 Live Cattle futures contract declined $4.02 per cwt., reaching its lowest price (averaging $116.27 per cwt.) in five weeks. For the week, Feeder Cattle futures prices declined $7.12 per cwt. and $6.33 for the May and November contracts of 2017, respectively. On a weekly average basis, Feeder Cattle futures prices last week were the lowest in eight weeks.

Lean Hog futures contracts had small changes last week. The July and December contracts for 2017 were up slightly, while the other contracts slipped (June, August, and October). The July contract last week averaged $81.98 per cwt. The December 2017 Lean Hog futures price last week averaged $62.61 per cwt. As a reminder, last year the December Lean Hog contract began to decline in mid-June when it was in the mid $60’s per cwt. and it finally posted a low of $41.37 on the third week of October.

Now we turn our attention to two key news stories. On Monday, protocols to allow the US to begin beef exports to China were released. For a concise review and summary we suggest reading an article by Katelyn McCullock, Economist at the American Farm Bureau Federation, which was posted to their Market Intel page (available here).

The second story was on Friday morning when Amazon announced they had struck a deal to buy Whole Foods. Both Amazon and Whole Foods are publicly traded companies. That announcement and subsequent speculation became front page news throughout the world.

Whole Foods stock price went higher to reflect the bid of Amazon, but other publically traded grocery-related stocks (including those that combine grocery with many other goods and apparel in large stores) declined. Some of that decline was because Amazon is a new player in the brick and mortar grocery game that is perceived as bigger, faster, richer, etc. than the than the existing teams. Amazon is paying for Whole Foods with cash.

Whole Foods was for sale because their earnings had posted declines for several quarters in a row and they had lagged adapting to the marketplace and consumer attitudes. However, there is broader grocery sector story. The day before the Amazon/Whole Foods announcement, on Thursday, Kroeger (a publicly traded company with an array of grocery store concepts throughout the US) announced that even though their sales improved year-over-year, they had lower profits than expected (their financial summary is here).

From their financial summary “... Net earnings for the fourth quarter totaled $506 million, or $0.53 per diluted share. Net earnings in the same period last year were $559 million, or $0.57 per diluted share. Total sales increased 5.5 per cent to $27.6 billion in the fourth quarter compared to $26.2 billion for the same period last year.

"Total sales, excluding fuel, increased 4.4 per cent in the fourth quarter over the same period last year.... Kroger anticipates identical supermarket sales, excluding fuel, to range from flat to 1 per cent growth for 2017.” A disconnect has occurred between sales and profitability in publicly reported grocery companies.

As reported by the US Census Bureau, US food sector retail sales in May (advance release) increased 2.3 per cent year-over-year, following a 2.6 per cent gain in April. Those gains were down from a 3.9 per cent rise for March. That three-month direction is not overly robust.

Grocery store sales were up from a year ago by 3.9 per cent and 2.8 per cent for April and May, respectively. As shown in the prior paragraph, grocery store sales increases do not necessarily mean profit gains. Restaurant sales gains have been lagging.

In May, food service, restaurant and drinking place sales were up only 1.8 per cent compared to the prior May and April’s increased only 1.3 per cent. April and May were the first months that grocery store sales growth outpaced that of foodservice, restaurant, and drinking places since April 2014. Overall, food sector sales growth has run below trends for the economy since last October.

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