Consumer beef demand underpins market, analyst says

Tightening supply and strong demand signals to keep trend up for the cattle market.

The market is a bit overbought short-term and could see some back and fill-type action, but the overall trend looks to remain up. China continues to expand its imports of U.S. beef, and the market looks to have the declining supply structure into the fall, which may lend support. Consumer demand remains very strong with impressive retail sales numbers.

U.S. beef export sales for the week ending July 22 came in at 22,468 tonnes for 2021 and 35 tonnes for 2022 for a total of 22,503. This was down from 25,411 the previous week but above the four-week average of 17,639. Cumulative sales for 2021 have reached 755,600 tonnes, up from 593,200 last year and the highest on record. The five-year average is 557,000. The largest buyer was South Korea at 8,222 tonnes, followed by Japan at 6,085, and China at 4,488. South Korea has the most commitments for 2021 at 212,700 tonnes, followed by Japan at 185,600 and China at 119,000. Last year, China had only booked 15,000 tonnes by this time of the year and 4,100 two years ago.

Cash live cattle traded in decent volume on Thursday at higher prices than last week. In Kansas, 8,410 head traded at 118-123.50 with an average price of 120.13, up from an average of 119 last week. In Nebraska, 1,965 head traded at 122-123 with an average of 122.13, up from 121.67 last week. In Texas/Oklahoma, 3,784 head traded at 120, up from 118.77 last week. The USDA boxed beef cutout closed $2.06 higher at $275.22. This was up from $266.14 the previous week and was the highest the cutout had been since July 9. The USDA estimated cattle slaughter came in at 119,000 head yesterday. This brings the total for the week so far to 477,000 head, up from 467,000 last week and 474,000 a year ago.

Talk of the overbought condition of the market and that the futures hold a large premium to the cash market helped to trigger some selling yesterday. The market seems to be in position for declining supply in the weeks ahead and that, along with positive demand indicators, could support a higher trend in the cash market.

Market Ideas

October Live Cattle support comes in at 127.27, with 132.92 as next target. December Cattle are still operating under the negative technical influence of the key reversal on Tuesday. Support is at 132.80 and 132.25, and it will take a move above 134.57 to negate the reversal.

Lean Hogs

China had two weeks of export sales cancellations, followed by a small purchase this week.

The technical action has turned bearish, and the lean hog market seems to have the supply fundamentals for the cash market to trend lower in the weeks ahead.

Slower demand from China for U.S. pork could leave more product for the U.S. to absorb. The large discount of the futures to the cash market might provide some temporary support from time to time. Perhaps the 555-point break in just three sessions this week was too far and too fast. Early selling yesterday pushed the market down to its lowest level since July 15. The export sales report was OK, but sales to China were very small, and this comes after two weeks of China cancelling previous sales. With the futures discount to cash, it will likely take a turn down in pork values to see sellers turn more aggressive. The USDA pork cutout, released after the close yesterday, came in at $122.94, down from $123.22 on Wednesday but up from $120.99 the previous week.

U.S. pork export sales for the week ending July 22 came in at 38,502 tonnes for 2021 and 367 for 2022 for a total of 38,869. This was up from 24,531 tonnes the previous week and above the average of the previous four weeks at 26,874. Cumulative sales for 2021 have reached 1.280 million tonnes, down from 1.355 million a year ago but the second highest on record. The five-year average is 965,600. The largest buyer this week was Mexico at 25,073 tonnes, all for 2021, followed by Chile, which bought 3,308 for 2021 and 367 for 2022 for a total of 3,675. China was the sixth-largest buyer at 807 tonnes. The largest buyer for the year so far is Mexico at 421,948 tonnes, followed by China at 321,851 and Japan at 149,551.

The CME Lean Hog Index as of July 27 was $111.94, down from $112.05 the previous session and $112.34 the previous week. The USDA estimated hog slaughter came in at 474,000 head yesterday. This brings the total for the week so far to 1.876 million head, up from 1.869 million last week but down from 1.888 million a year ago.