Livestock Analysis | February 18, 2022
Price action: April lean hogs rose $1.825 to $109.40, up $7.175 for the week and the highest closing price for a nearby contract since mid-August.
5-day outlook: Hog traders ignored the overbought status of the futures market and instead focused on strong cash fundamentals. Bullish sentiment has strengthened, but there’s potential for corrective selling after the three-day weekend if followthrough buying doesn’t emerge. A steadily rising cash market continues to provide fundamental support, though traders have a much-larger-than-normal seasonal advance built into futures, especially the lead April contract. The CME lean hog index this week reached the highest levels since September and the next reading is expected to rise another 98 cents to $95.23.
30-day outlook: Seasonally, the cash market typically declines during March and April, before rallying to summer highs. Given the much-stronger-than-normal premium built into April hogs and the overbought status of the market, we are watching for signs of a top that could present a short-term hedging opportunity. We still believe summer-month contracts have more upside, though prices in the $115 to $118 range can’t be fully ignored.
90-day outlook: Slaughter levels for the year to-date and projections for summer marketings suggest hog futures could push higher. But export demand is projected to decline again this year, largely due to expected slower sales to China. If exports to China continue to wane and/or domestic demand slows, the market may struggle to reach price levels projected slaughter rates would suggest.
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.
Price action: April live cattle fell 90 cents to $145.875, down 30 cents for the week and the lowest closing price since Feb. 1. March feeder cattle fell 77.5 cents to $165.425, down 80 cents for the week.
5-day outlook: Cattle futures ended the week on a soft note on corrective pressure in the wake of contract highs posted last week. Technicals slipped this week, with April live cattle appearing to create a small head-and-shoulders on the daily bar chart. Futures declined despite continued strength in cash markets, with live steers up about $1.90 this week to an average of $142.25. While April is still about $4.00 over cash, the late-week slide seemingly implies diminished expectations for next week’s cash action. This probably reflects the ongoing decline in wholesale beef values. Industry attention will be focused on USDA’s monthly Cold Storage report Feb. 22 and the next Cattle on Feed report Feb. 25.
30-day outlook: Cash price action over the next month will exert influence over futures direction. History suggests the trend will be seasonally higher since the supply of fed cattle traditionally reaches annual lows during this period. The numbers tend to start upward again by mid-March, but that’s routinely met by a surge in demand as packers and grocers gear up for the spring grilling season. The biggest danger to this outlook would be reduced consumer demand strangled by greatly elevated retail prices. Those fell from December into January, with steak prices dipping 1.1% to $9.825, but that represented a 19% annual increase. All other beef cuts fell 3.4% on a monthly basis, but still marked a 20% annual rise.
90-day outlook: Seasonal patterns indicate cash cattle prices will rally into mid-to-late April, then begin a slide through late spring into summer. With the current feedlot supply essentially unchanged from year-ago levels, that suggests spring fed cattle supplies will largely match those seen last year. However, the biggest difference to be seen this year will likely be the greatly elevated consumer cost of beef, whereas strong domestic and export demand powered those prices higher last year. This does not necessarily mean cash and futures prices will fall below those seen last year, since packer margins will almost surely prove dramatically smaller than they reached in mid-2021. Still, high retail prices seem likely to limit the market’s early-spring upside and increase its potential downside this summer.
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.
