Livestock Analysis | April 14, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: June lean hog futures rose $1.225 to $86.875 but for the week lost $1.30.

5-day outlook: Short covering was featured in lean hog futures today after the June contract hit fresh lows Thursday. Hog market bulls still have heavy lifting to do in order to pull June futures out of a seven-week-old downtrend on the daily chart. Continued weakness in the cash market will make it difficult for the bulls to make headway next week. The latest CME lean hog index is down 30 cents to $71.95 as of April 12, dropping below the January low. Thursday’s preliminary figure dropped another 32 cents to $71.63. The national direct five-day rolling average cash hog price today was quoted at $69.81. A seasonal low in the cash hog market has historically not occurred this around time of year. However, such has been more common in recent years — four of the past six. The noon pork report today showed cutout value rose $2.02 at $79.58, led by gains in hams and loins. Movement at midday was decent at 168.78 loads.

30-day outlook: On the positive side, the more price pressure that occurs in lean hog futures, the likely more aggressive the seasonal price reversal will be when the rebound begins. Packers slowing production around the Easter holiday likely added to downside price pressure in hogs the past week. Weaker consumer demand is the underlying element pressuring hog and pork product prices. Grocers have kept pork prices above year-ago levels through the first quarter of this year despite the cash and wholesale weakness. We believe that with beef prices still rising, retailers will begin to drop pork prices in the coming weeks, which should help the seasonal rebound when it does occur. The grilling season that is just beginning should also help to lift wholesale pork prices.

90-day outlook: USDA this week reported U.S. pork export sales of 27,100 MT for 2023 were down 49 percent from the previous week and 31 percent below from the prior 4-week average. U.S. pork sales abroad will have to improve in the coming weeks/months for the pork markets to have solid price recoveries. The U.S. dollar index this week hit a 2.5-month low, which will make U.S. ag products, including pork, more competitive on the world markets. Also, China’s ASF problems may also have the world’s most populous nation looking more to the U.S. for its pork import needs.

What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.

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

Feed needs: You should have all soymeal needs covered in the cash market through May. You have all corn-for-feed needs covered in the cash market through mid-April.  

 

 

Cattle

Price action: Expiring April live cattle futures sagged 75 cents to end the week at $174.75, while most-active June futures dropped 77.5 cents to $163.725 at Friday’s close. That marked a weekly rise of 62.5 cents. The nearby April feeder contract rallied 72.5 cents to $203.40, whereas most-active May futures gained just 10 cents to $207.90, which represented a weekly gain of $2.50.

5-day outlook: Futures traders still doubt recent fed cattle strength can be sustained, as was made evident by the discounts built into the nearby fed cattle contracts versus this week’s cash gains. The latest report stated the Monday-Thursday cash market average for fed cattle at $180.35; that topped last week’s cash mean by $7.25. The April future implies cash prices will have dropped by about $6.00 by its April 28 expiration. Traders might be right in expecting a late-month cash drop, but we think there’s a strong chance of another sizeable cash market advance next week, since grocers traditionally tend to continue pursuing wholesale beef through noon of the second to last Wednesday of the month (April 19 in this case). Thus, we’re still inclined to expect across-the-board cattle/beef strength through the middle of next week. We doubt producers are going to be in the mood to take weaker bids at least through midweek. Conversely, given the May 2020 choice beef spike to the $475 area, as well as the mid-2021 double-top over $340.00, the wholesale market seemingly has considerable room to rally.

30-day outlook: We are sticking with the idea that the cash cattle market may not peak until early May. Such a belated peak occurred in two of five similar years since 2002 (2004, 2017). Cattle slaughter will almost surely continue rising into early summer, but a sizeable portion of that increase is likely to come in the form of animals placed as calves last fall (which usually grade select). Thus, the supply of well-finished, choice-grade animals may not rise all that substantially. Much depends upon the aggressiveness with which grocers pass the ongoing wholesale price surge on to consumers. Holding the line on retail beef prices could power the cash and wholesale complex higher, whereas boosting consumer prices rapidly could strangle demand and put a top in the various markets.

90-day outlook: The year 2003 was somewhat similar to this year and to the five more recent examples in the sense that steer weights were low and market-ready feedlot supplies were tight. In that year, the cash market traded quite strongly through spring and refused to decline substantially that summer. It did dip from a mid-April high around $80.50 to a mid-June low near $73.00, but rebounded to the $80.00 area by early August and didn’t peak until spiking over $110.00 in mid-October. It might have gone even higher in early 2004, but the big ‘Mad Cow’ scare tanked the market just before Christmas that year. We suspect grocers will have boosted retail beef prices sharply by midsummer, so we are not inclined to expect a repetition of 2003 later this year, but neither do we anticipate a dramatic drop in cattle prices this summer.

What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.

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

Feed needs: You should have all soymeal needs covered in the cash market through May. You have all corn-for-feed needs covered in the cash market through mid-April.  

 

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