Meats

Livestock prices on Tuesday closed higher: Aug cattle +0.125 (+0.12%), Jul hogs +2.050 (+2.58%). Aug cattle on Tuesday closed higher after wholesale beef prices rose for the first time in the last five sessions. Wholesale beef prices had dropped to a 1-1/2 month low Monday, a sign of weak domestic beef demand. Another negative is the decline in beef packer profit margins to a 3-week low, which may curb packer demand for cattle. Cattle prices posted a 2-1/2 month high Monday on speculation packer demand for cattle will remain firm after beef packer profit margins rose to a record high June 1. Cattle supplies remain ample as USDA slaughter data shows 14.102 mln head of cattle processed this year through Jun 9, up +3.1% y/y. Also, the May 22 USDA Cold Storage report showed beef in cold storage in Apr rose +1.6% m/m and +2.9% y/y to 471.545 mln lbs. The USDA in the May 10 WASDE report projected U.S. 2018/19 beef production will climb +1.8% y/y to a record 27.778 bln lbs. Nearest-futures (M18) cattle on Apr 1 fell to a 1-year low on news of China's implementation of a 25% tariff on U.S. pork exports to China and by news that beef is on the list of products subject to China's proposed 25% tariff on $50 billion of U.S. products. Foreign demand for U.S. beef is robust with U.S. Jan-Apr beef exports up +13.2% y/y at 983.716 mln lbs and with the USDA projecting that U.S. 2018/19 beef exports will climb +3.5% y/y to a record 3.150 bln lbs.

The May 25 USDA Cattle on Feed report was mixed as it showed cattle on feed as of May 1 rose +5.1% y/y to 11.558 million head, below expectations of +5.2 y/y, but still the second-highest May 1 inventory since data began in 1996. Cattle placements in feedlots during Apr fell -8.3% y/y to 1.695 million head, a smaller decline than expectations of a -9.6% y/y. Also, cattle marketed for slaughter in Apr rose +5.9% y/y to 1.803 mln head, above expectations of +4.0% y/y.

July hog prices on Tuesday rallied to a new 3-month high. Supportive factors included (1) improved domestic pork demand after wholesale pork prices rose to a 4-month high, and (2) strength in the cash market after cash hog prices surged to a 9-3/4 month high. Further upside may be limited on concern packer demand for hogs will collapse after pork packer profit margins fell to their most negative in 3-years. Trade concerns remain as well after Mexico, the largest importer of U.S. pork by volume, imposed reciprocal tariffs on some U.S. goods, including pork, for the U.S. tariffs on Mexican steel and aluminum exports. The USDA in the May 10 WASE report projected that U.S. 2018/19 pork production will climb +3.1% y/y to a record 27.624 bln lbs. USDA slaughter data shows 53.932 mln hogs processed this year through Jun 9, up +2.9% y/y. The May 22 USDA Cold Storage report was negative as it showed overall pork supplies in Apr rose +5.0% m/m and rose +8.7% y/y to 641.407 mln lbs. Foreign demand for U.S. pork is solid with U.S. Jan-Apr pork exports up +8.9% y/y at 2.064 bln lbs and the USDA projects that U.S. 2018/19 pork exports will climb +3.5% y/y to a record 6.125 bln lbs.

The USDA Q1 Hogs & Pigs report (released March 29) was bearish as it showed that the U.S. pig herd as of Mar 1 rose +3.1% y/y to 72.908 mln, which was a record high for a March 1st (data from 1964). Also, sows retained for breeding as of Mar 1 rose +1.7% y/y to 6.2 mln, more than expectations of +1.4%, and hogs marketed for slaughter rose +3.3 y/y to 66.708 million, more than expectations of +2.2% y/y and a record high for a March 1st (data from 1964). In addition, piglets per litter in Q1 rose +1.4% y/y to 10.58, higher than expectations of +1.0% y/y and a record high for a March 1st (data from 1964).