Livestock Analysis | April 1, 2022
Price action: June lean hog futures closed down 17 1/2 cents at $120.45 and near the session low. For the week, June hogs lost $5.40. April hogs closed down 45 cents at $101.30.
5-day outlook: June lean hog futures closed at a technically bearish weekly low close today, and on Thursday produced a bearish “key reversal” down, suggesting follow-through chart-based selling pressure early next week. Still, recent corrective pullbacks have proven to be buying opportunities for bulls, who have been enjoying a solid cash market fundamental picture. Nearby April lean hog futures will be supported next week by the discount to the cash index. The CME lean hog index quote is projected down 50 cents at $102.63. Lean hog futures next week will likely see selling interest limited by this week’s bullish USDA Hogs & Pigs Report.
30-day outlook: Seasonally warming temperatures should stimulate consumer demand for pork as the grilling season approaches. The lean hog cash index is around $5.00 above the comparable year-ago level. The cash index strength is likely to continue as spring slaughter declines and grilling demand rises, especially with hog slaughter expected to decline 2% to 4% from last year’s levels.
90-day outlook: Key outside markets — crude oil, the U.S. dollar index and the U.S. stock indexes — have been more significant influences on much of the raw commodity sector the past few weeks, due in part to their higher volatility due to the Russia/Ukraine war. Look for this to continue to be the case, including in the livestock sector, during the next few months. It appears the crude oil market has put in a major top, which may limit speculative buying interest in other commodity markets, including hogs.
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.
5-day outlook: Seasonal patterns and the mid-April arrival of Easter suggest grocers will start next week pursuing beef aggressively as they start planning and building inventories for beef features early in the grilling season, particularly for the first weekend in May. That would apparently amplify recent wholesale beef gains, although choice cutout values had slipped 96 cents to $267.43 at midsession Friday. That probably bodes well for a resumption of February cash strength after the five-area markets essentially stalled around $138.00-$139.00 the past few weeks. The weak April futures close indicates little industry optimism about the short-term cash outlook, although we are encouraged by three weeks of increased slaughter rates through late March.
30-day outlook: Although historical patterns suggest cash cattle prices could post a fresh 2022 high in the next 2-4 weeks, it’s possible that the late-February high at $143.22 will mark the first-half top. The plentiful supply of cattle in feedlots, relatively high steer weights and greatly elevated retail beef prices point to a less-than-optimal supply/demand situation from a pricing standpoint. Slaughter totals will likely work their way upward toward their highest levels of the year by midsummer, although mid-December kills have commonly topped the summer highs in recent years. The increased supply will be somewhat mitigated by increased calf-fed animals in the slaughter mix since those cattle will likely grade Select rather than Choice. Still, a seasonal price decline is likely to begin at some point later this month.
90-day outlook: The anticipated short-term price peak and reversal will likely be followed by persistent weakness this spring. Larger supplies and big demand questions loom. We worry about expensive grocery store prices causing consumers to shift their focus from steaks to pork and chicken cuts. We’re less worried about a potential recession hurting demand, since we think consumers are likely to avoid restaurant visits and possibly buy and eat more from grocery stores. The modest summer discounts to current prices seem remarkable at this point, since the usual decline from early-year highs to summer lows is about $11.00 on average. With those comparatively optimistic forecasts being seconded by outright bullish projections being made by the late 2022-early 2023 contracts, we worry that producers will respond by slowing marketings and allowing a backlog of cattle to build in feedlots. This is a formula for a weak intermediate-term outlook.
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.
