Fed-cattle prices slipped to a new seasonal low last week.
Cash prices in Plains fell to near $143/hundredweight, about $2 below the previous low from late July, while October futures fell to $140/hundredweight, a new 15-month low for a nearby contract, says Marty Foreman, Doane senior economist.
Live cattle futures bounced back as equities and other outside markets stabilized. However, some choppy consolidation trade may still occur in the short run before fall beef demand takes hold, Foreman said.
The outside markets may pose the biggest downside risk for the cattle market over the near term, should the stock market continue to weaken and/or the dollar strengthen.
The long-awaited Federal Reserve Open Market Committee meeting will convene on Sep 16-17. The Fed will review economic factors and determine whether or not to raise interest rates. Most expect the Fed to delay an interest rate hike until later this year, but outside market moves could impact the cattle market over the near term.
Foreman adds, "Increased supply may also be drawing out the process of posting a seasonal low. As we discussed last week, carcass weights are up sharply from a year ago, reaching 905 pounds, 25 pounds above a year ago and only one pound below last fall’s all-time high.."
Foreman also says, expectations for seasonal improvement in fed-cattle prices, along with negative margins for new feedlot placements, have contributed to the near-record weights and a backlog of cattle.
However, he says feeder-cattle prices have weakened and modest premiums in deferred live-cattle futures aren’t incentivizing feedlots to continue holding cattle, so the backlog should begin to diminish.
Pork: cautiously optimistic
Although cash hog prices have fallen lately, pork values have held up very well, says Doane economist Dan Vaught.
Seasonal factors often seem to support the hog and pork complex during September.
Vaught adds, "We believe consumer demand has improved from spring and summer levels, which probably reflects lower prices in grocery stores."
He says many in the pork industry have apparently been persuaded by a recent financial industry report claiming a growing domestic shortage will force China to actively import pork in late 2015 and 2016. Unfortunately, U.S. industry usage of ractopamine has apparently become a major issue on that point, since Chinese imports of American pork seemed rather weak during July.
U.S. pork sold to China and Hong Kong totaled 34.667 million pounds. That easily topped month and year-prior levels at 31.2 million and 24.8 million pounds, respectively, but it continued the 2015 pattern of monthly totals falling more than 50% from the March 2014 high and about 75% under the peaks reached in 2008 and 2011.
Vaught adds he is still cautiously optimistic about the fall swine market outlook.
Poultry market looks strong
The margin outlook for the global poultry industry is still strong and the industry is benefiting from ongoing bullish market fundamentals, says Rabobank’s latest Poultry Quarterly Q3 report. Rabobank analysts say supply is balanced in most regions, feed costs are low and competing beef prices are high. With China as the major exception, the poultry industry is profitable in almost all major global regions.
Avian influenza (AI) remains a major concern for the global industry, with new outbreaks in most regions in the world, except Australia and South America. Any new case can have a big impact on regional and global trade streams.
Rabobank believes the outlook for late 2015 and 2016 is bullish, as feed prices are still expected to remain at low levels, and the global breeding stock supply will be very low in regions with AI-related import restrictions, such as China and southeast Asia. The expectation that China will face a shortage in poultry and pork supply next year could especially become a major swing factor for the global poultry industry. The expected further spread of AI to key US chicken production areas is a major wild card for the industry outlook in the second half of this year.