Livestock Analysis | February 4, 2022

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Hogs

Price action: Anticipation of continued strength boosted hog futures, with April lean hogs climbing $1.70 to $100.075, up $5.15 for the week.

5-day outlook: This week’s preliminary hog slaughter total is seen reaching 2.436 million head, down 8.9% from year-ago levels. Given the persistently large annual reductions in hog slaughter in recent weeks, despite widespread talk of Covid-caused packer cutbacks, one is almost forced to think hog supplies are falling even farther below year-ago levels than the widely anticipated 6%. Meanwhile, the hog index for Thursday is expected to rise 97 cents to $84.30 when officially quoted Monday. Anticipation of that jump likely boosted the expiring February contract, as well as deferred futures in Friday trading. Conversely, the February contract’s weekly close at $87.025 suggests the industry expects a somewhat more modest advance prior to the Monday, Feb. 14 contract expiration.  

30-day outlook: History suggests cash hog prices will continue rising on a seasonal basis into mid-February. Beyond that point, price patterns become much regular, with sustained strength continuing into spring in some years, with others being marked by a significant late winter-early spring pullback. Given widespread expectations for hog supply reductions of 6% through February, the potential for sustained strength is probably relatively high. The relatively late arrival of Easter this year (April 17) suggests less of a grocer rush to gather ham supplies for Easter dinner entrees, which seems likely to work against ideas of late-winter gains in hog and pork prices.

90-day outlook: The industry is looking for the annual supply reductions to move from 6.0% to 4.0% this spring. That will still exacerbate the usual seasonal drop in supplies which routinely culminates in the lowest hog supplies of the year in early summer. It’s no coincidence that hog prices also tend to peak in that same time frame, especially with demand for the various grilling cuts, as well as bacon for BLTs, also surging toward annual highs. We believe elevated retail beef prices will limit consumer demand for meat, although pork may benefit from substitution demand. Still, we will be surprised if peak summer hog prices don’t top the year-ago high at $122.68.

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 futures rose 12.5 cents to $146.875, up $3.775 for the week. March feeder futures fell 62.5 cents to $166.10, up $6.475 for the week.

5-day outlook: Cattle slaughter accelerated this week after falling below year-ago levels in January due to Covid-related worker absences at packing plants. This week’s cattle kill reached an estimated 639,000 head, down 2.0% from the same week in 2021. Reduced kills seemed to create a modest backlog of cattle by the end of the month, which partially explained sustained cash market slippage. However, the mid-January dip in steer weights, as well as this week’s jump in cash prices for fed cattle, suggest the suspected backlog is not as severe as previously thought. Given likely grocer buying for planned early-March beef features, this suggests wholesale beef and cash cattle prices will work higher next week.

30-day outlook: U.S. cattle slaughter totals often reach annual lows during February-March, which plays a big role in powering cash cattle prices to annual highs in the March-April time frame. Resurgent beef demand as the industry and consumers gear up for grilling season very likely cause the price high to follow, rather than coincide with, the nadir in supplies. The Lenten season, as well as the arrival date of Easter (April 17) probably play a role in this phenomenon as well. We worry that persistently elevated retail beef prices will tend to limit the demand/price response this spring.

90-day outlook: This week’s surge in April live cattle built-in something like a normal seasonal premium over February cash prices. Thus, bulls may prove less willing to push futures a great deal higher in the absence of sustained cash market strength. Conversely, the June and August contract apparently reflect a moderate seasonal decline during late spring and summer. Essentially cattle futures seem to be anticipating a “normal” seasonal price pattern over the next few months. We think the improved demand strength seen early last year might warrant a more optimistic outlook, but we also worry that excessively high retail prices faced by consumers will stifle offtake and limit the upside. Thus, mid-2020 cattle futures seem fairly priced.

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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