Livestock prices this week closed higher: LCG9 +2.575 (+2.06%), LHG9 +1.950 (+2.89%).Â
Feb live cattle on Friday surged to a contract high and nearest-futures (Z19) rallied to a 7-1/2 month high and finished the week down by +2.06%. Feb cattle rallied sharply Friday on improved prospects for an increase in U.S. beef exports after the U.S. and China agreed on a phase-one trade deal. Cash market strength is also supportive for cattle futures as cash cattle prices remain just below a 7-monthigh from Dc 6. On the negative side, domestic beef demand is softening after wholesale beef prices fell to a 2-month low Tuesday. Also, packer demand for cattle may wane after beef packer profit margins tumbled to a 7-month low Friday. Beef supplies are abundant as USDA slaughter data shows 31.69 mln head of cattle processed this year through Dec 14, up +1.2% y/y. Cattle prices plummeted to a 2-3/4 year nearest-futures low (V19) Sep 6 on concern about weak demand. Trade tensions between the U.S. and its trading partners are hurting U.S. exports as U.S. Jan-Oct beef exports are down -4.2% y/y to 2.522 bln lbs. Trade optimism had improved slightly in October after Japan removed tariffs on U.S. beef and pork as part of a larger trade pact with Japan. Japan accounts for 25% of all U.S. beef exports. The U.S. Meat Export Federation forecasts 2020 U.S. beef exports will climb 5% y/y. Supplies are projected to be robust as the USDA estimates U.S. 2018/19 beef production will climb +1.0% y/y to a record 27.195 bln lbs. The USDA projects U.S. 2018/19 beef exports will climb +0.3% y/y to 3.151 bln lbs. Â
Feb lean hog prices on Friday rallied to a 1-month high and finished the week up by +2.89%. Hog prices rallied Friday after the U.S. and China agreed on the text of a phase-one trade deal, which may lead to increased Chinese purchases of U.S. pork. Strength in cash hog price also underpinned hog futures as cash hogs climbed to a 1-1/2 month high Thursday. On the negative side, packer demand for hogs may wane after pork packer profit margins fell to a 5-week low Friday. Pork supplies are abundant as USDA slaughter data shows 123.431 mln hogs processed this year through Dec 14, up +5.9% y/y. Also, the Sep 27 Q3 USDA Hogs & Pigs Inventory report showed the total U.S. hog herd as of Sep 1 rose +3.4% y/y to 77.678 million, a record for a September since data began in 1988. Due to Chinese tariffs on U.S. pork, China has mainly imported pork from Europe with European 2019 Jan-Sep pork exports to China up +55% y/y to 1.55 MMT. The USDA FAS projected Sep 11 that European 2020 pork exports to China may climb 4% to a record 3.6 MMT. Escalation of the U.S./China trade conflict hammered hog prices down to an 8-3/4 month nearest-futures low Aug 23 after China announced plans to impose retaliatory tariffs on $75 billion of U.S. goods, including U.S. pork supplies. China’s hog herd has been decimated by African swine fever with about 30% of the herd having been culled. China’s total pig herd in Sep totaled 203.6 mln pigs, down -39.2% y/y. Also, Vietnam said Wednesday that it has culled 5.9 million hogs, or 22% of its total swine population, to try to stop the spread of African Swine Fever. The UN’s Food and Agriculture Organization (FAO) forecasts global 2019 pork production will drop -8.5% to 110.5 MMT due to the spread of the swine flu. Foreign demand for U.S. pork has strengthened with U.S. Jan-Oct pork exports up +3.7% y/y to 5.017 bln lbs as Mexico, the top importer of U.S. pork, has resumed purchases. The USDA projects that U.S. 2018/19 pork exports will climb +9.6% y/y to a record 6.441 bln lbs and that U.S. 2018/19 pork production will climb +5.1% y/y to a record 27.662 bln lbs. Â