Beef Packers Are Likely Very Short Bought By Dennis Smith
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Tuesday February 26, 2019
Cash will be called lower and likely lower for the rest of the week as packers take full advantage of the backed up hog situation. For five consecutive weeks the weather has disrupted movement of hogs. Yesterday’s kill was a glaring 109,000 head lower than the kill from Monday of last week. So margins improved yesterday as packers lowered cash bids and product actually had a nice jump. Over the last several weeks the cutout has been quoted higher at noon only to fail to hold the strength. So yesterday’s higher closing pork report was a refreshing change. The bearish trade is embolden as they’ve been correct and they have all the positive open trade equity. Yesterday’s volume was 61,000 and open interest increased in every hog contract with the total OI rising by 4,200. At the moment there’s not much one can say that’s bullish. We now need three things to develop. We need improved weather so hogs can move freely. We need to get the backlogged animals dead and gone. And we need to see some demand, some real demand show up for pork that is trading at ten-year lows. Look for a lower early trade.
While pork demand is poor beef demand is ripping strong. Loads moved last week for export were huge and the largest going clear back to last August. At the same time packers are likely extremely short bought. Last week’s negotiated volume of trade was only 52,000, the smallest in months. Yet another winter storm battered cattle over the weekend in the northern plains. Look for the cash steer trade to develop by Wednesday. Packers, ever resistant to chasing and competing with each other for inventory, may be forced to bid more aggressively starting this week. LC volume yesterday was confirmed at 64,000 with open interest edging higher by 400 cars. On Thursday the USDA will release the bi-annual cattle inventory report and on March 8th we get another on-feed report. Feed lot conditions remain in poor shape. Highly stressed cattle will never perform well. Look for weights to continue falling. The last time we had a similar situation of declining weights into spring with good beef demand was 2017. The trimmings market went crazy higher that spring and drove cash steer prices and futures sharply higher. Apr LC went to 13800.
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