Cattle prices are consolidating below the recent 2-1/2 month high following the sharp rally seen in June and early July. Bullish factors included (1) the recent hot temperatures in the Great Plains that undercut supplies by killing animals and reducing carcass weights, and (2) the weaker dollar. Bearish factors included (1) news in the Cattle on Feed report released on July 23 that cattle on feed as of July 1 were at 103% of the year-earlier level, indicating some herd rebuilding, and (2) the recent soft US economic data, which suggests that consumer demand may be soft for beef.

Fundamental Outlook-Bull Market Correction-Cattle fundamentals remain generally supportive for the medium-term due to relatively tight supplies with the US feedlot herd as of Jun 1 at 10.494 mln head, just above a 6-year low. Also, total beef in cold storage fell to a 5-year low of 364 mln lbs in May before rising slightly in June. However, cheap feed and relatively high cattle prices are sparking herd rebuilding, with cattle on feed in June at 103% of the year-earlier level.

Cattle Supply/Demand

Cattle on Feed Report (July 23)-Bullish-Cattle on feed as of Jun1 were 103% of the year-earlier level, while cattle placed on feed in June eased to 117% of the year-earlier level vs May's 124%.

Cold Storage (Jul 22)-Neutral-June beef cold storage stocks were up +3.5% m/m and -13.7% y/y.

Oct hog prices rallied to a new contract high and to a 2-1/2 month high on the weekly nearest-futures chart, but remained below May's 14-year high. Bullish factors include (1) ongoing concern that recent extremely hot weather in the US Midwest will drive down hog weights after the USDA reported that the average hog sold to slaughterhouses was 2 lbs lighter on July 14 than a month earlier, (2) indications that bacon demand is outstripping supplies, thus prompting a rally in pork belly prices, and (3) continued dollar weakness that should boost foreign demand for US pork.

Fundamental Outlook-Bullish -Hog fundamentals are supportive due to shrinking herds with the June 25 quarterly Hogs & Pigs report showing a -3.6% y/y decline in the US hog inventory to 64.4 million hogs as of June 1 and a -3.0% y/y drop in the US hog-breeding herd to 5.788 mln sows, just above the recent record low of 5.76 mln sows which is the lowest since USDA data began in 1988.

Hogs Supply/Demand

Quarterly Hogs & Pigs (Jun 25)-Bullish-US hog inventoryfell -3.6% y/y to 64.4 million hogs and the US hog-breeding herd as of Jun 1 fell -3.0% y/y to 5.788 million sows. Cold Storage (Jul 22)-Bullish-June pork cold storage stocks fell -8.1% m/m and -29.0% y/y.

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