Livestock Analysis | June 3, 2022

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Hogs

Price action: June lean hog futures rose 15 cents at $110.20. July hogs fell $1.425 to $110.75, down 97.5 cents for the week.

5-day outlook: Hog futures market saw a routine corrective pullback today after Thursday’s climb to a five-week high. After Tuesday’s solid losses the bulls made a good recovery this week to keep the near-term price uptrend on the daily bar chart for July futures alive, which suggests some followthrough price strength next week. Summer lean hog futures’ $3 to $5 premiums to the cash index may have limited buyer interest in futures late this week and could do the same next week.

Still, overall near-term cash hog market fundamentals are constructive. The CME lean hog index was up 12 cents at $105.03 as of Wednesday, the 10th gain in 11 days and the highest since last August. Thursday’s projected index quote at $105.61, up 58 cents from Wednesday. The five-day rolling average national direct cash hog prices today was quoted at $112.50. Pork cutout values rose $3.38 early today to $115.40, led by gains in bellies. Movement was 114.94 loads.

30-day outlook: The cash hog market is likely to continue to appreciate seasonally as slaughter numbers are expected to be reduced this summer. Hog slaughter and pork production were surprisingly large in May. However, that likely reflected gilts going to market rather than into the sow herd. It’s likely heavier weights helped bolster seasonally low hog numbers, which increased pork supplies. That suggests summer slaughter levels could be lower and would explain the sizeable premium now held by the July futures contract.

90-day outlook: USDA reported net weekly U.S. pork sales totaling 31,900 MT for 2022, down 13% from the previous week but up 15% from the prior four-week average. U.S. pork sales to overseas customers are going to have to improve to keep futures and cash prices trending up. The U.S. dollar index trading near a 20-year high is a bearish factor for export demand. On the domestic front, still-high retail beef prices should work to keep consumer demand stronger for cheaper pork cuts.

What to do: Be prepared to extend feed coverage on price weakness.

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

Feed needs: You should have all corn-for-feed needs covered through mid-June. You are hand-to-mouth on soybean meal needs.

 

Cattle

Price action: August live cattle fell 27.5 cents to $133.85, a gain of $1.45 for the week. August feeder futures ended at $173.875, up 92.5 cents for the day and up $7.55 on the week.

5-day outlook: Acting buying from grocers, possibly due to strong beef clearance over Memorial Day weekend, drove robust demand for wholesale beef this week, which in turn translated into firm cutout values and improving cash cattle values. After beginning the week down about $3.00 from the week prior, the Monday-Thursday average at $137.84 came in just $1.09 below week-ago. Look for more of the same next week as grocers buy actively for Father’s Day and Independence Day features. Although seasonal patterns, which largely reflect cattle supplies rising near the largest levels of the year, imply continued cash market weakness, strong demand might cause the cash market to firm and possibly rise modestly. That should prove supportive of cattle and feeder futures as well.

30-day outlook: The seasonal wholesale beef demand surge is likely to last until at least June 22, when grocers will likely have met the bulk of their Independence Day needs. From that point demand doldrums faced by the wholesale and cattle markets will begin, which in turn will increase the downside risk faced by cash cattle and futures prices. The big spring drop in cattle weights and the wide Choice-Select wholesale price spread indicate feedlots have done a good job of marketing cattle over the past three months. This implies the supply of market-ready cattle in feedyards is now limited, thereby reducing beef production per head and improving producers’ bargaining leverage with packers. For this reason, downside price risk in cash and futures seems likely to be limited in the weeks just ahead. Still, seasonal factors suggest the cash market will decline to the $130.00 to $132.00 area by mid-summer.

90-day outlook: Seasonal patterns suggest the cash cattle market will struggle to sustain rallies between Independence Day and Labor Day. The 10-year average implies prices could bounce from an early-summer low to early-August, only to revisit those lows later that month. Demand improves as Labor Day looms, but the seasonal consumer shift in buying patterns from steaks to roasts as the weather cools tends to undercut cash and wholesale values. The October 2022 through April 2023 live cattle contracts imply a major cattle market advance beginning in early fall. This is based upon the inflationary environment, ongoing cyclical U.S. herd contraction (implying reduced feeder cattle availability) and increased feed costs. We worry that that optimism will persuade producers to slow their marketings by late summer. That could be a formula for a backlog of feedlot cattle and a sustained decline in prices.

What to do: Be prepared to extend feed coverage on price weakness.

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

Feed needs: You have all corn-for-feed needs covered in the cash market through mid-June. You are hand-to-mouth of soybean meal needs.

 

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