Livestock Analysis | March 11, 2022

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Hogs

Price action: April lean hog futures rose $2.625 to $102.725, up $2.275 for the week. Deferred futures also rose sharply, with the July contract ending at $117.625, the highest close since Feb. 23.

5-day outlook: Hog futures showed a bullish resurgence late this week amid signs of another updraft in the cash market. Mixed signals in the cash hog and fresh pork markets may keep futures trading choppy next week. The CME lean hog index rose 65 cents at $99.91, a six-month high, and the preliminary figure for Monday is up another 85 cents. Pork cutout values rose $5.32 early today to $109.52, led by a gain of $21.68 in hams. Movement at midday was decent at 128.11 loads. The national direct five-day rolling average cash hog prices was quoted at $99.42. However, weak Lenten season demand and a modest rise in hog slaughter levels many times put the brakes on late-winter rallies in lean hog futures. Seasonally, the cash hog market is typically weaker this time of year.

30-day outlook: A period of renewed consumer demand for pork is a few weeks away with retailers poised to step up purchases as the U.S. grilling season nears. High retail beef prices could prompt many consumers to favor cheaper pork cuts. Also, hog slaughter levels typically decline to annual lows by early summer. USDA has projected a 4.0% annual decline in spring hog supplies.

90-day outlook: On the U.S. pork export sales front, numbers will have to improve in the coming months to keep hog futures at levels still considered to be elevated from a historical perspective. USDA yesterday reported U.S. pork net sales of 25,400 MT for 2022, down 40% from the previous week and down 4% from the average for the previous four weeks. A generally strong U.S. dollar has crimped global demand for U.S. pork. There are no early signals the dollar will back down from its lofty levels.

What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.

 

Cattle

Price action:  April live cattle led futures higher, rising $1.40 to $137.30, a gain of $1.525 for the week. April feeder futures surged $1.725 to $157.975, up 72.5 cents for the week.

5-day outlook: Strength in both the cash and wholesale markets powered today’s cattle futures gains, although modest losses in soymeal futures may have helped feeders as well. This week’s cumulative average price of fed cattle had slipped below $138.00, down over $2.00 from last week. But that price crept upward Wednesday and Thursday, reaching $138.28 yesterday. Choice beef values rebounded from an 11-month low earlier this week to gain $255.08 early today. Considering grocers’ habit of boosting beef purchases early in most months, these gains strongly suggest the cash markets for fed cattle will rise next week, which in turn may boost futures, especially with the April live cattle contract ending the week at a discount to cash.

30-day outlook: Grocers tend to slow beef buying late in most months, so with the late arrival of Easter on April 17, cattle and beef prices may be poised to slip later this month. Conversely, there are few reasons the traditional April surge toward annual highs in fed cattle values won’t occur again this year. Recent declines in steer weights suggest feedlot marketings are more current than they were through midwinter, which should improve producer leverage in bargaining with packers. The biggest danger to sustained seasonal strength stems from persistently elevated retail beef prices. Retail steak prices dipped 0.7% from January to February, but the average for all other cuts rose 2.6% month-over-month and was up 23% from February 2021.

90-day outlook: Rising slaughter rates and the resulting beef supplies typically drag cattle prices downward from an April high into summer, whereas strong grilling season demand often limits those losses to some extent. The rising percentage of calf-fed animals, which usually grade select, in the slaughter mix tends to drag the whole complex lower, but choice-grade beef values hold up better and tend to mitigate the decline. Recent futures losses have indicated growing trader and industry concerns about a “stagflationary” environment. We are less concerned, since the livestock and red meat markets have historically held up relatively well during recessions, reflects consumers’ tendency to eat out less and cook more meat at home. The biggest concern about the cattle outlook stems from greatly elevated retail beef prices and their tendency to stifle consumer buying.

What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.

 

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