Plentiful hog supplies and some plants shutting down temporarily to perform routine maintenance, which is typical this time of year, cut cash prices for more than a week, said traders and analysts.

They said retailers were not actively buying pork, given abundant overall meat supplies and a seasonal slowdown in demand until the early-September Labor Day holiday – the last official grilling holiday of the summer.

Uneasiness about trade relations between the United States and China, the No. 2 U.S. pork importer in 2017, kept a lid on deferred hog contracts, a trader said.

“It (China) definitely weighed on the market. But you’ve already priced in the worst case scenario with all of that,” said Hehmeyer Trading + Investments director of commercial agriculture Tom Cawthorne.

August hogs ended down 1.275 cents per pound at 58.975 cents, and hit an all-time low for the contract at 58.050 cents.

October closed 1.125 cents lower at 49.650 cents, and made a new contract low of 50.475 cents.

Live cattle futures end weaker

CME live cattle futures posed modest losses while waiting for the bulk of cash cattle to change hands by late Friday, said traders.

Technical selling and burdensome supply worries further weighed on deferred futures contracts, they said.

“I think the whole thing (market) is very psychological. Everybody keeps saying we’ve got this big wall of cattle coming, so packers are not going to bid up for cattle unless they have to,” said JRS Consulting owner Jack Salzsieder.

Packer bids for slaughter-ready, or cash, cattle in Texas and Nebraska ranged from $109 to $110 per cwt versus $114 to $115 asking prices, said feedlot sources.

A few cattle at Wednesday’s Fed Cattle Exchange, on average, brought $110 per cwt. Last week, cash cattle in the U.S. Plains moved at mostly $112.

August live cattle closed down 0.025 cent per pound at 108.600 cents. October ended 0.325 cent lower at 109.950 cents.

CME feeder cattle tracked softer live cattle futures. August closed 0.625 cent per pound at 151.200 cents.

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The data also showed the June 1 feedlot cattle supply climbed 4.1 per cent from a year earlier — its highest for the month since USDA began tabulating the data in 1996.

Analysts attributed last month’s unexpected feedlot inflow to a surge in feeder cattle, from Canada and Mexico.

Some analysts had predicted that fewer cattle entered feedlots in May due to low livestock prices at the time, which eroded feedlot margins.

Chicago Mercantile Exchange live cattle futures on Monday may have a mildly bearish reaction to Friday’s report, analysts said. But traders may soon turn to near-term market fundamentals such as beef demand and cattle prices, they added.

USDA’s report showed May placements at 2.124 million head, compared with 2.119 million a year earlier. It was above the average estimate of 2.026 million head.

The government put the feedlot cattle supply as of June 1 at 11.553 million head, up 4.1 per cent from 11.096 million a year ago. Analysts, on average, forecast a 3.4 per cent increase.

USDA said the number of cattle sold to packers, or marketings, were up 5.4 per cent in May from a year ago to 2.056 million head.

Analysts had projected a 5.1 per cent increase from 1.951 million last year.

There were a few more cattle placed in May than anticipated, which stops two consecutive months of lower-than-last-year placement numbers, said Allendale Inc. chief strategist Rich Nelson.

The influx of Mexican and Canadian feeder cattle raises questions about the June placement figure in the next report, said Nelson.

Feeder cattle imports from Canada rose, an impact of a longer-term effect of a major feedyard closing in Western Canada, said Livestock Marketing Information Center senior economist Katelyn McCullock.

Drought conditions in parts of Mexico landed more of those cattle in U.S. feedlots, coupled with a high volume of feeder cattle that moved through auction markets, she added.

“I don’t think these placements necessarily set a new trend moving forward. I wouldn’t be surprised to see placements again below a year ago between now and fall,” said McCullock.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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Supermarkets are stocking up on steaks, hot dogs and hamburgers for the May 26 U.S. Memorial Day holiday weekend, the start of the summer grilling season. “I think the consumer in the next 90 days is going to have a big opportunity to probably buy some beef fairly cheap,” said Pete Bonds, owner of Bonds Ranch based near Fort Worth, Texas.

The U.S. Department of Agriculture forecast surging numbers of steers and heifers ahead — further weakening prices for slaughter-ready, or cash, cattle while strengthening packer revenues.

“We’ve basically got a wall of cattle to go through… we’re selling these cattle just as fast as we can get a bid,” said Bonds.

HedgersEdge.com calculated that U.S. beef packers on Wednesday earned an estimated $236.90 per head of cattle processed, the highest this year (all figures US$). It had not topped $100 since November 2017 but is still shy of the record of $254.35 last June.

Some of the market conditions behind last year’s record margins have again resurfaced: weaker live cattle futures, sharply lower cash cattle prices and rising wholesale beef values, said HedgersEdge.com analyst Bob Wilson.

Chicago Mercantile Exchange live cattle slid 22 per cent from their Feb. 20 high to a low of $101.375 on March 17 in anticipation of larger supplies. “The market is telling cattle feeders it wants those cattle to come to slaughter now,” said Livestock Marketing Information Center senior economist Katelyn McCullock.

Analysts said the bulge of animals at feedlots is contributing to lower cattle returns.

Last week cash cattle prices in the U.S. Plains averaged about $114.75/cwt, $15 below this year’s high for the week ended Feb. 17, according to USDA data.

For the week ending May 18, USDA quoted wholesale choice-grade beef, which is preferred by cookout enthusiasts, at $231.93/cwt, the year-to-date high.

McCullock said the surplus of cattle is moving through the system efficiently as packers capitalize on their impressive margins. Still, beef demand is critical for a consistent flow of cattle the through the pipeline, she said.

“Ultimately, it comes down to keeping up demand for cattle, not just heading into grilling season when beef demand is high, but also in the months following.”

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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China listed U.S. goods from soybeans to beef that could potentially incur a 25 per cent import tariff by the end of May if Washington carries out its threat to raise similar duties on $50 billion in Chinese goods (all figures US$).

A trade war would be a blow to the U.S. beef industry, which has seen an increase in year-over-year supplies even as prices have been falling for market-ready cattle, partly due to seasonal factors.

In June 2017, U.S. beef exports returned to China after a 13-year absence over BSE worries. Some restrictions remain in place along with a 12 per cent duty on beef imports from the U.S., according to the U.S. Meat Export Federation (USMEF).

USMEF data showed U.S. beef exports to China after the market reopened in the second half of 2017 totaled 3,020 tonnes valued at $31 million.

Over the past nine months Chinese interest in U.S. beef has steadily gained momentum, said USMEF CEO Dan Halstrom in a statement. Additional tariffs on U.S. beef will risk opportunities for further growth, he said.

“USMEF is hopeful that this trade dispute can be resolved without China introducing additional obstacles for U.S. beef,” Halstrom said.

Kent Bacus, director of international trade and market access for the National Cattlemen’s Beef Association, also in a statement, said it was “unsettling” but not surprising to see U.S. beef targeted for retaliation.

“This is an inevitable outcome of any trade war. This is a battle between two governments, and the unfortunate casualties will be America’s cattlemen and women and our consumers in China,” said Bacus. The Trump administration has until the end of May to resolve the issue, Bacus added.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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Farmers added extra pigs, encouraged by less-costly feed during that period and the addition of four new pork packing plants since last year.

Plentiful hogs will keep a lid on pork prices at a time when warmer weather ushers in spring and summer cookouts, said analysts.

But weaker hog prices in March, and the potential of increased feed costs, could make farmers think twice about expanding their herds in the coming months.

“There may be some changing dynamics. Farmer profitability has been under pressure during March because of lower hog prices and we’ve crept up feed costs,” said Livestock Marketing Information Center director Jim Robb.

Another challenge facing the industry is the threat of a trade war between the U.S. and China, which has drawn U.S. pork exports into the fray, said analysts.

“What is bothersome is are we going to see some of the major importers of pork in the Orient backing away from our markets and not taking as much pork,” said Linn Group analyst John Ginzel.

The U.S. government’s prospective plantings report on Thursday projected a year-on-year decline in plantings of corn and soybeans.

Chicago Mercantile Exchange hog futures on Monday may be influenced more by near-term market fundamentals than Thursday’s hog report whose results were close to forecasts, said analysts.

USDA’s report on Thursday showed the U.S. hog herd as of March 1 at 103.1 per cent of the year-ago level or 72.908 million head, the most ever for the March quarter since the government began compiling the data in 1988.

Analysts’ average forecast was 72.902 million head.

The U.S. breeding herd was 101.7 per cent of the year-ago level, at 6.2 million head, up from 6.098 million last year.

The average trade forecast was 6.186 million.

The March 1 supply of market-ready hogs for sale to packers was 103.3 per cent of a year earlier, at 66.708 million head, up from 64.603 million last year. Analysts, on average, had estimated 66.711 million.

“Now the big shock is going to be this prospective planting report that came out. Is that going to now change some peoples opinions as the cost of feed likely will increase,” said Ginzel.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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Persistent drought in the U.S. Plains withered winter wheat grazing pastures, which forced beef cattle into feedyards in states noted for growing corn such as Iowa and Kansas, said analysts.

“This is a dry weather story… and not great news for the trade,” said Allendale Inc chief strategist Rich Nelson, regarding USDA’s placement result that was near the high end of the range of analysts’ forecasts.

Larger cattle numbers means more beef tonnage around the late summer and early fall period, said Nelson.

Another factor behind February’s placement buildup was that packers paid feedlots enough for their cattle to turn a profit, which allowed them to buy calves to fatten, analysts said.

Monday’s Chicago Mercantile Exchange live cattle futures may open lower based on Friday’s report, said analysts.

But substantial market losses on Friday, partly tied to trade war fears, might lessen some of the report’s bearish implications, said analysts.

Most of Friday’s futures sell-off was on worries about a potential trade war between the U.S. and China in addition to increased near-term supplies, said Nelson.

“But I think there is more to go,” said Nelson regarding potential further market weakness come Monday.

USDA’s report showed February placements at 1.817 million head, up from 1.694 million a year earlier and above the average forecast of 1.766 million.

It was the largest placement result for the month of February since 1.82 million in 2002, according to analysts.

The government put the feedlot cattle supply as of March 1 at 11.715 million head, up 8.8 per cent from 10.772 million a year ago. Analysts, on average, forecast a 8.2 per cent increase.

USDA said the number of cattle sold to packers, or marketings, were up 1.6 per cent in February from a year ago to 1.675 million head.

Analysts had projected a 1.2 per cent rise from 1.648 million last year.

Katelyn McCullock, senior economist with the Livestock Marketing Information Center, said the southern Plains continued to see some drought impacts based on lighter-weight animals going into feedlots — including feeder cattle arriving from Mexico.

“The cattle that are coming in across the border are going straight to feedlots as opposed to onto pasture or on some forage,” said McCullock.

— Reporting for Reuters by Theopolis Waters in Chicago.

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The domestic demand outlook remains bright, thanks to the strong U.S. economy, upcoming spring grilling season and Easter holiday ham purchases. U.S. goods in general are attractive to foreign buyers, thanks to the recent drop in the dollar.

However, trade disputes with China and slow progress in North American Free Trade Agreement (NAFTA) talks have clouded prospects for U.S. pork exports, which are crucial for the industry, as roughly one-quarter of pork produced in the United States is exported.

The U.S. Meat Export Federation (USMEF) said U.S. pork exports were on a record pace, with volumes from January through November 2017 of 2.23 million tonnes, worth US$5.9 billion. That was up from 2.09 million tonnes, worth US$5.4 billion, for the same period in 2016, according to the industry group.

“Without a doubt, our biggest concern is the trade situation,” said Steve Meyer, a Kerns and Associates economist and National Pork Producers Council consultant.

President Donald Trump’s decision to slap stiff tariffs on U.S. imports of Chinese solar panels and washing machines has sparked fear among pork producers of possible retribution from China, the world’s largest consumer of pig meat and the U.S. pork sector’s No. 3 market.

China trade is always risky, Meyer said, and “the last deal over washing machines and solar panels didn’t help anything.”

China is a growing market for U.S. pork, but pork muscle-cut exports trended lower in 2017 as China’s domestic pork production increased, said USMEF.

“We live in an interconnected world. And when you put your thumb in someone’s eye, they’re likely to try to jab back and put their thumb in your eye,” said Linn Group analyst John Ginzel.

Separately, contentious NAFTA modernization discussions are drawing more attention as the United States spars with Mexico and Canada, the top- and fourth-ranked destinations for U.S. pork by volume. Progress has been slow after several rounds of talks, and concerns remain that the U.S. could withdraw from the agreement.

Cancelling the agreement could threaten hog farmers’ profits, which have been strong, thanks to low-cost feed and strong demand throughout 2017. Those factors also enhanced the bottom lines for packers such as Tyson Foods.

“The hog industry is really strong because everything is lining up right now,” said Marshall, Minnesota hog farmer Greg Boerboom. Farmers have cut input costs by using nutrients from pig manure on crops instead of commercial fertilizer, Boerboom said.

As of Dec. 1, there were 73.2 million hogs on U.S. farms, the most since 1943, according to the U.S. Department of Agriculture, and packers produced a record 25.6 billion pounds of pork, according to independent industry analyst Bob Brown and Livestock Marketing Information Center’s Jim Robb.

Boerboom said potentially losing NAFTA is a bigger threat to his livelihood than disputes with China because Mexico and Canada share common borders and have been viable markets for the United States.

“You want to keep the customers you have before you start worrying about new ones. So I really think about Mexico, Canada and even Japan and South Korea more than I do China,” said Boerboom.

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Bitter cold tends to slow cattle weight gains, while hazardous conditions disrupt movement of livestock to market.

February live cattle closed 0.425 cent/lb. higher at 126.85 cents (all figures US$). April settled up 0.2 cent at 126.125 cents.

CME live cattle will resume its normal three-cent-per-pound daily price limit on Monday after not settling up or down Friday’s 4.5-cent expanded limit.

Some funds that exited Friday’s stock market collapse may have landed in live cattle futures because of their upward momentum, said traders and analysts.

“It does look like there’s some new money flowing into the cattle market. It looks like maybe some are coming out of the stock market,” said Midwest Marketing Solutions analyst Brian Hoops.

Fundamentally, cattle futures traders await next week’s cash cattle trade that will be influenced by weather, wholesale beef demand and forecasts for increased supplies ahead.

Friday afternoon’s choice wholesale beef price dropped 50 cents/cwt from Thursday to $209.10. Select cuts fell $1.09 to $203.45, the U.S. Department of Agriculture said.

This week packers paid $125-$126/cwt for slaughter-ready, or cash, cattle that a week ago brought mostly $127.

Monday evening is the first notice day for live cattle deliveries against the February contract that will expire on Feb. 28.

Buy stops and live cattle futures gains lifted CME feeder cattle to a two-month top. The market’s 6.750-cent expanded limit on Friday will return to its usual 4.5-cent limit on Monday.

March feeders ended up 1.375 cents/lb. at 150.925 cents.

Hogs hit another high

CME lean hogs reached their highest level since late July 2016, after upward-trending cash prices lifted the market to a one-year high on Thursday.

Packers competed for market-ready hogs as snow and colder weather enters areas of the upper western Corn Belt, a trader said.

Processors may have to pay for more hogs to coax farmers into opening doors to swine barns that they would like to keep closed to retain heat, a trader said.

February lean hog futures closed 0.375 cent/lb. higher at 75.2 cents, and reached a new contract high of 75.4 cents. Most-active April finished up 0.725 cent at 73.55 cents.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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April closed up its three-cent-per-pound daily price limit (all figures US$). Investors bought that contract and simultaneously sold February. The limit will expand to 4.5 cents on Friday.

February live cattle closed 2.575 cents per pound higher at 126.425 cents. April settled three cents higher at 125.925 cents, and above the 10-day moving average of 124.19 cents.

Some traders attributed the futures gains to Wednesday’s mildly bullish U.S. Department of Agriculture semi-annual cattle inventory report that showed slower herd expansion.

Others argued that the Wednesday report confirmed last Friday’s USDA monthly cattle survey’s implication for increased front-end cattle supplies, and fewer animals later, as drought shrivels winter grazing pastures.

“We’re slowing down expansion, but there are bigger numbers coming,” said Oklahoma State University economist Derrell Peel following Wednesday’s report.

With this week’s cash cattle sales nearly completed, investors await next week’s trade against the backdrop of plunging temperatures in the U.S. Plains. Frigid weather tends to slow cattle gains, making them less available to packers when needed.

Packers this week paid $125-$126/cwt for slaughter-ready, or cash, cattle versus mostly $127 last week.

On Thursday, USDA’s export sales data showed U.S. beef for the week ended Jan. 25 totaled 25,200 tonnes in the current marketing year versus 28,100 tonnes in the previous week.

CME feeder cattle ended higher led by stronger live cattle futures and tighter feeder cattle supply outlook. March settled up its 4.5-cent price limit, which will be expanded to 6.75 cents on Friday; March feeders ended up at 149.55 cents.

Hogs finish strong

CME hogs closed higher with support from live cattle futures’ advances and pork packer competition for supplies, said traders.

Snow and single-digit temperatures in the upper western Corn Belt over the next few days will make hogs harder to come by, a trader said.

Farmers will keep swine buildings closed to hold in heat, and nobody wants to lose pigs on icy roads, he said.

USDA’s export sales report put U.S. pork exports for the latest week at 27,300 tonnes, down from 35,000 in the prior week.

February lean hog futures closed 1.6 cent/lb. higher at 74.825 cents, and hit a new contract high of 74.95 cents. Most-active April finished up 0.525 cent at 72.825 cents.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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The result topped most analysts’ predictions, mainly led by worsening drought in the U.S. southern Plains that shriveled available winter wheat grazing pasture.

Corn Belt states were the recipients of cattle from areas of Montana, North Dakota and South Dakota where insufficient moisture persists.

“These very dry conditions that are developing in wheat pasture country drove change in placements in November. And I suspect we got some of that in December also,” said Texas A+M University economist David Anderson.

Some analysts cited cheaper feed, which lowered input costs for feedlots, as another reason behind last month’s placement uptick.

And more heifers are entering feedlots, suggesting to analysts that the rate of cattle herd expansion is slowing.

Chicago Mercantile Exchange live cattle futures may open lower Monday following USDA’s report, but could quickly rebound spurred by higher-than-expected prices for market-ready, or cash, cattle later on Friday.

USDA’s report showed December placements at 1.799 million head, up 0.8 per cent from 1.785 million a year earlier and exceeded the average forecast of 1.73 million.

The government put the feedlot cattle supply as of Jan. 1 at 11.489 million head, up 8.3 per cent from 10.605 million a year ago. Analysts, on average, forecast a 7.7 per cent rise.

USDA said the number of cattle sold to packers, or marketings, were down 1.4 per cent in December from a year ago to 1.752 million head.

Analysts had projected a 1.2 percent drop from 1.777 million last year.

“The big placement figure tells you that we’re going to have big numbers of cattle coming at us for the foreseeable future,” said U.S. Commodities president Don Roose. He too alluded to the bump in feedlot cattle placements in Corn Belt states where feed is more plentiful.

“You continue to be in a drought in the southern Plains, that continues to expand, so it no doubt is another factor that you have to throw into the placement discussion,” said Roose.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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