Broad based declines in commodity markets on Friday led to a significant pullback for all livestock futures contracts.

Grain futures were down sharply, with corn declining as much as 27.6 cents on the December contract and November soybeans down 55 cents. The decline was bearish for cattle and hogs as trade had to reassess feed cost inflation impact on meat prices. It remains to be seen, however, whether the recent sell-off in commodities will be sustained. Markets appeared to correct somewhat in overnight trading on Sunday but clearly there remain plenty of unanswered questions going into this week.

For one, how clear is the case for a global economic slowdown and what impact will this have on demand for commodities. Some measures, such as the decline in ocean freight rates, seem to indicate that demand for commodities is on the wane. On the other hand, those that hold a more bullish view point out that at about the same time last year markets also appeared quite wobbly only to settle by Q4 and set all time record highs on a number of fronts in the first half of this year. The problem for livestock markets is that the volatility in feed and energy markets simply adds to the risks faced by producers and processors going forward.

While feed costs may have eased somewhat, they do remain significantly higher than a year ago (see bottom portion of table below) and this continues to fuel liquidation in both the cattle and hog sector.

Cow slaughter rates remain quite significant at this time. For the week, total cattle slaughter was up 2.1% from a year ago but this was mostly due to higher cow slaughter rates, which as running as much as 22% higher than a year ago. More cows in the mix have also led to the decline in overall carcass weights. The contribution of more Canadian slaughter cows in the mix is relatively small. When looking at the overall increase in US cow slaughter in the past six weeks, only about 12% of the increase is due to Canadian slaughter cow imports.

It remains to be seen whether current cow slaughter rates are sustained into the fall but the trend towards a significantly smaller beef herd, and consequently less beef and higher beef prices, remains intact at this time. Hog sow slaughter also is running almost 25% ahead of last year’s pace and sow prices have rebounded from the lows registered earlier in the year.