Livestock Analysis | January 14, 2022

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Hogs

Price action: February hog futures leapt $3.05 to $80.90, a $1.05 weekly gain.

5-day outlook: This week’s hog slaughter fell 9.0% short of the comparable year-ago total, whereas recent USDA data implied a 6% annual reduction in hog supplies. This is the second straight week slaughter totals fell well short of normal expectations, suggesting packers are being forced to slow operations due to Covid-related worker absenteeism. It probably explains the comparative weakness experienced during the week ended yesterday and may signal more short-term hog/pork sector vulnerability to price losses.

Today’s big surge reflected the stunning $12.24 jump in wholesale pork cutout posted yesterday. Traders assumed the huge leap posted early yesterday morning would be mitigated or reversed in afternoon activity. Pork cutout did fall $5.56 at noon today and the preliminary reading for the next CME lean hog index slid another 28 cents to $74.32. Those developments likely kept February futures from rising even more substantially. If the buying that emerged yesterday shows signs of persisting, the whole hog/pork complex could climb even more substantially.

30-day outlook: Traders will be paying close attention to the cash hog and wholesale pork market performances over the next month, especially with the situation viewed in light of the cash market’s traditional early-winter rally into mid-February. This is particularly pertinent this year due to the anticipated 6% annual reduction in winter hog slaughter. If the rally proves relatively weak despite the big reduction in hog and pork supplies, that will stand as proof of substantially reduced demand and potentially bode ill for the spring-summer outlook.

90-day outlook: USDA’s December Hogs and Pigs report indicated spring hog supplies will move from levels around 6% below year-ago levels to those around 4% under those seen during spring 2021. That may mitigate somewhat the usual seasonal reduction in hog supplies from mid-December highs to annual lows in early summer.

The pork complex should also see a surge in demand for grilling cuts as spring nears. The usual jump in demand could be limited if grocers maintain retail prices at the greatly elevated levels seen during the second half of 2021. Conversely, grocery store prices more in keeping with the wholesale pork losses experienced last fall could power a dramatic demand surge and drive hog prices sharply higher. We continue thinking summer CME hog contracts are undervalued.

What to do: Get current with feed advice.

Hedgers: You currently have all risk in the cash market.

Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on price pullbacks to extend coverage.

 

Cattle

Price action: February live cattle futures rose 97.5 cents to 137.975 and near mid-range, up 65 cents for the week. March feeder cattle fell 35 cents to $166.375 and for the week fell 30 cents.

5-day outlook: It was a choppy and sideways trading week in the cattle futures markets. However, today’s bullish weekly high close in February live cattle sets the stage for followthrough technical buying when trading resumes Jan. 18, after the long holiday weekend. Traders are grappling with recently weaker cash cattle prices but a good rebound in the boxed beef market. Those probably reflect packer slowdowns due to Covid-related absences. This week’s cattle kill, at 621,000 head, fell 4.8% short of the comparable week in 2021.

Choice cutout values early today rose $1.92 to $284.78, the highest daily average since mid-November, suggesting better demand from retailers restocking after the holidays. Select grade rose 48 cents and midday movement was 49 loads. The cash market likely will post a lower average price for the fifth week in the past six as Covid-related packing plant absences slow slaughter levels. Live steers averaged $136.49 this week through yesterday, down nearly $2.00 from last week's average, USDA reported.

30-day outlook: Better demand for U.S. beef from foreign buyers, including China, would likely push cash cattle and futures markets higher in the coming weeks. China imported 654,000 MT of meat in December, bringing the yearly total for 2021 to 9.4 MMT, down 5.4% from 2020. China’s imports of beef rose last year, however. USDA yesterday reported net U.S. beef sales for the first week of 2022 totaled 9,700 MT, with top buyers including Japan.

90-day outlook: Many health experts believe the Omicron coronavirus variant will fade in the coming weeks. As spring approaches, and barring another new Covid strain cropping up, global consumers may begin to finally see a light at the end of the tunnel, which would bode well for beef demand. Also, the latest U.S. retail data shows the average price of beef cuts had stalled at $7.11 in December, while steak prices had dipped back below $10.00. Lower U.S. retail costs could go far in boosting consumer demand, and cattle prices, in the weeks and months ahead.

What to do: Short-term protective hedges for fed cattle producers may be needed if recent lows are violated.

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

Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on price pullbacks to extend coverage.

 

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