Livestock Analysis | May 13, 2022
Price action: June lean hog futures rose $3.275 to $100.75, up from a four-month low the previous day. June hogs still tumbled $3.35 for the week, the third consecutive weekly drop.
5-day outlook: Short covering and bargain hunting boosted hog futures to end the week, and solid followthrough buying early next week could suggest a near-term market bottom is in place after a sharp, three-week downdraft. However, market technicals remain heavily bearish. Pork cutout values fell 39 cents early today to $98.21, the lowest since early February. Loins and hams led the decline and movement was decent at 176 loads. The national direct five-day rolling average cash hog price today was quoted at $104.93. The CME lean hog index fell 22 cents to $101.04 (as of May 11).
30-day outlook: The June lean hog futures contract is still trading at a slight discount to the CME cash index after today’s big gains in futures. However, the July and August contracts did move to slight premiums. That’s one positive sign the cash hog market may be close to a bottom and if so, may at least stabilize in the near term, if not start to trend up. Recent USDA numbers suggest fewer hogs coming to market this summer, which, combined with the grilling season, could lift cash and futures markets. Recent weakness in pork demand must improve in the coming weeks if the cash and futures markets are going to see sustained price uptrends.
90-day outlook: A surge in the U.S. dollar index to a 20-year high remains a bearish overhang for U.S. livestock, raising concern over weaker demand, though USDA this week reported a slight improvement in U.S. pork export sales. History shows that trends in the currency markets tend to be stronger and longer-lasting than price trends in other markets. If the greenback continues to appreciate it will pose a headwind to U.S. pork exports.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
Price action: June live cattle rose 42.5 cents to $132.075, still down 67.5 cents from the end of last week. Deferred contracts ended lower. August feeder cattle gained $1.50 to $168.025 but lost $6.675 for the week.
5-day outlook: Live cattle futures may remain under pressure next week from weakness in cash prices and slumping wholesale beef prices, which have fueled concern over consumer demand. Continued strength in corn prices could further burden feeder cattle. Live steers averaged $142.17 this week through Thursday morning, down $1.25 from last week’s average. Futures’ soft performance this week indicates traders expect continued weakness in the cash trade next week.
30-day outlook: The cattle and beef markets’ recent weakness contrasts with the strong performances typically seen this time of year as retailers stock up for summer grilling. Packers have moved robust amounts of boxed beef over the past couple of weeks, but have had to slash prices to do so. Choice cutout values firmed late this week, rising $1.23 early today to $258.43, but remain near eight-week lows. Retailers typically complete purchases for Memorial Day weekend features by mid-May. If wholesale prices remain weak, further declines may be ahead in late spring and summer. With fed cattle supplies increasing seasonally, the combination of weak demand and large supplies suggests a large seasonal drop in cash prices in late May and early June.
90-day outlook: Seasonal patterns imply declining cash cattle prices during summer and possibly beyond. The historical tendency for wholesale beef prices to drop is part of this phenomenon, as is the usual spring rise in cattle slaughter. Based on the 10-year average, weekly slaughter may rise from this week’s total of 657,000 head to around 690,000 in the final week of June. At the same time, elevated weights are boosting beef production per head. June cattle futures around $133.00 have largely anticipated a “normal” cash decline, but weak demand may amplify the breakdown this year.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
