3-28-14 – Continuing this week’s choppy trade ahead of some key USDA reports, grain and soybean futures are mixed in overnight trading, while cattle are weaker and hogs are up.\r\n\r\n This afternoon, the USDA’s quarterly Hogs and Pigs report is due for release. And with growing concerns about the effects of Porcine Epidemic Diarrhea virus on herd size via its toll on baby pig survival, it will be watched carefully.\r\n\r\n A Reuters poll of market analysts indicates they expect a decline of 5.5% in herd size from a year ago, with the number kept for breeding down only 0.4% and the number kept for marketing down 6.0%.\r\n\r\n Traders in the summer months of lean hog futures appear to be expecting thinner supplies, yet pork cutout values are weaker as meat buyers concentrate on marketing already-purchased product.\r\n\r\n Not only will the Hogs and Pigs report say something about the number of hogs with implications for pork production, but grain traders will be watching carefully for implications about corn and soybean meal demand in the coming year.\r\n\r\n But there are concerns among traders that the report will not be able to show the true effect of the PED virus. The report tracks hog supplies as of March 1, and thousands more likely have died since then.\r\n\r\n Lean hog futures are up overnight, following the move Thursday to limit gains. Thursday’s action left an island reversal on daily charts of the April contract, a bullish indicator.\r\n\r\n \r\n\r\nCATTLE HOLDING BULLISH MOMENTUM\r\n\r\n \r\n\r\n Even though boxed beef markets are moving sideways this week, cash cattle markets were steady to $2 per cwt higher, indicating good demand for slaughter-ready cattle. Tight supplies of feeder cattle are adding support.\r\n\r\n Cattle traded this week at $150 to $152 on a live basis, with reports of sales in western Nebraska up to $154 and rumors of activity up to $157. These record-high prices likely will support futures prices in coming days, even though they are lower in overnight trade after finishing higher on Thursday.\r\n\r\n Weakness was attributed to sharp declines in wholesale beef markets Thursday. Traders remain jittery about consumer acceptance of higher beef prices as the sputtering economic recovery maintains a lid on spendable incomes.\r\n\r\n The USDA Thursday reported its choice boxed-beef cutout at $239.25 per cwt, down $2.51 and select down $2.10 at $231.21. The choice/select spread narrowed to $8.04, and the number of fabricated loads sold into the spot market was 105.\r\n\r\n Week-to-date slaughter was up slightly from last week and last year at 466,000 head. Slaughter through Thursday last week was 462,000 head and in the comparable week a year ago, it was 465,000.\r\n\r\n The CME Feeder Cattle Index for the seven days ended Wednesday was $177.98, up $0.80 while the March futures contract settled Thursday at $178.55, up $0.60 and another record high.\r\n\r\n \r\n\r\nRAIN CHANCES IMPROVE BUT LEAVE THE WEST DRY\r\n\r\n \r\n\r\n Extended forecast models indicate a chance of more rain in the Midwest and south with showers to encroach on parched areas of the southern Plains. But the rain will have a long way to go before relieving the exceptional drought conditions present in parts of Texas, Oklahoma and Colorado.\r\n\r\n Some Pacific Northwest rains are expected, but California remains a wasteland.\r\n\r\n The National Oceanic and Atmospheric Administration’s weekly drought monitor Thursday showed the extent of the drought. http://droughtmonitor.unl.edu/data/pngs/20140325/20140325_usdm_home.png In addition to the deep drought conditions of the southern Plains and California, much of the western Midwest also is abnormally dry or experiencing moderate drought, which could be a problem for corn and soybeans.\r\n\r\n \r\n\r\nIN OUR OPINION\r\n\r\n \r\n\r\n–With 25 drug companies phasing out animal antibiotics as growth promotants, the cost of feeding cattle and hogs could rise.\r\n\r\n–Better margins for cattle and hog producers means a rising desire to increase herd size, held in check by drought-stressed pastures and PEDv.\r\n\r\n–Consumers may continue to pay more for meat, although portion sizes may decline, and less will be wasted.\r\n\r\n–Higher February placements seem to be turning trader opinions for summer months bearish.\r\n\r\n–Easter ham bookings likely winding down.
Cattle feeding is pretty straightforward - doing it profitably isn't.