Hog Supplies Could Weigh On Cattle Futures Longer Term

Live cattle and feeder cattle futures could see longer-term pressure from Tuesday’s USDA quarterly Hogs and Pigs report, which was considered somewhat bearish because it showed rising supplies to compete with high-priced beef.

The lean hogs futures market hardly moved after the report was released since all figures but one were within 1% of the average trade estimate.

But while the report was very near trade expectations, the industry continues to show a rising proclivity toward higher production after getting a grip on the Porcine Epidemic Diarrhea virus.  The PED virus is by no means stamped out, but a combination of higher farrowing, or birthing, rates and inoculation of sows is boosting US production.

Heavier slaughter weights also contribute to the increase in pork production.

The total Dec. 1 inventory of hogs and pigs was up 2% from a year earlier at 66.05 million head, compared with 64.78 million the previous year.  The number of hogs kept for breeding was up 3.7% at 5.969 million head from 5.76 million a year earlier.

The total number of hogs kept for marketing was up 1.8% to 60.08 million from 59.02 million in the 2013 December report.  Of these, the major increase in supply is for those weighing less than 120 pounds.  They will come to market in May or June, right at the peak of grilling season.

 

LARGEST BREEDING HERD INCREASE IN 16 YEARS

 

What might start to worry cattle traders more is that the report showed the largest one-year breeding herd increase since 1998.  Analysts Steve Meyer and Len Steiner said this was “the year of rapid supply expansion and a flood of hogs that drove prices to $8 per cwt live, or about $20 a head for finished hogs.”

The breeding herd, while smaller than it was in 2008, is producing 10.2 pigs per litter, compared with 9.5 pigs in 2008, a 7.37% increase.  And this number could grow as the industry continues to work its way out of the PEDv epidemic.

And hog producers intend to put the larger, more efficient breeding herd to good use.  Farrowings, after being up 3.3% from a year earlier in the September-through-November quarter to 2.871 million, are expected to be 3.9% above a year earlier in the December-through-February quarter to 2.87 million and 3.2% above a year earlier at 2.9 million in the March-through-May period.

That could mean slaughter hog inventories will be 3% to 4% above 2014 well into the end of 2015.

 

CASH CATTLE UNTRADED

 

Cash cattle markets this week are untraded through Tuesday.  Packer buyers remain aloof to feedlot offers of $162 per cwt on a live basis and $255 on a dressed basis.  No actual bids have surfaced in the Plains, but there was one report of an offer to call the main office for permission to buy cattle if the feedlot would lower the asking price to $159.  Rumor has it that the proposal was passed.

Some analysts think this week could be a wash with no sales as packer buyers lean on contracted and previously purchased cattle for next week’s holiday-shortened kill and allow this week’s larger feedlot showlists to grow even larger.

Others think packer buyers will come out with $158 bids today and ultimately pay $159 or $160 to get cattle bought ahead of the Christmas holiday – if futures prices cooperate.

Beef markets did their part Tuesday with the USDA’s choice cutout rising $3.24 per cwt from Monday to $242.60 and select going up $1.04 to $231.26.

However, feeder cattle futures turned south again Tuesday and could weigh on live cattle today