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CME: Labour Day Lowers Slaughter for the Week

by 5m Editor
14 September 2009, at 10:25am

US - As was the case a week ago, the year over year comparisons are skewed by the fact that Labor Day this year fell on a different week than in 2008, write Steve Meyer and Len Steiner.

Nevertheless, we can get a sense as to how cattle and hog slaughter is progressing by looking at the daily slaughter numbers. Steer and heifer slaughter for Tuesday - Friday was around 102,000 head per day, slightly higher than the 101,000 average of a week ago but 4 per cent higher than the daily slaughter average during the comparable time frame a year ago. Saturday steer and heifer slaughter this week was around 36,000 head (our estimate based on the USDA total daily cattle slaughter), which is much higher than the average Saturday slaughter we have seen for much of this summer.

The increase in Saturday slaughter is not that unusual given the holiday shortened week. As for US cow and bull slaughter this week, we should note that overall levels are somewhat higher than a year ago once we adjust for the holiday. The primary reason is the very large number of dairy cows coming to market, a direct results of the second dairy herd retirement program. Dairy producers continue to face a poor margins and so far the removal of almost 190,000 head has some effect on actual milk values but not as much as the market expected earlier in the year. The November milk futures contract currently stands at around $13.

Back in late March when the industry announced that it would embark on a program to liquidated the dairy herd, November milk futures traded as high as $16.4. While milk futures are higher as we go into 2010, the market seems to have realized that it will take time to restore some balance in the dairy complex, especially given the steady increases in productivity, which have partly offset the reductions in cow numbers. Lower grain prices clearly have been beneficial but we are still far from breakeven levels in this market.

Noone is really sure how long grain and high quality hay prices will stay at current levels, especially with energy prices and input costs at still high historical levels. As for US beef cow slaughter, it remains well below year ago levels, thus offsetting much of the increase in dairy cow slaughter.

Hog slaughter for the week was lower due to the Monday holiday but at a little over 2 million head, it still is a relatively large number. Daily slaughter for Tuesday - Friday was on average 429,000 head, about the same as the comparable time frame a year ago. Hog carcass weights are currently about 3 pounds heavier than the historically high levels of a year ago and this implies production volumes that continue to be above year ago. Hog futures were buoyed this week by reports of higher prices paid for hogs.

The weekly average for the IA/MN lean hog carcass prices was up 3 per cent from the week before, providing much needed support and buttressing expectations that the hog market is off its bottom. The only negative for hogs was the sudden reversal on Friday, as most contracts lost ground, especially Spring 2010 futures. The only exception was the nearby October contract, which is tracking the cash market. The hog market will continue to be tested, especially with relatively weak ham and trim prices.