Livestock Analysis | May 19, 2023
Price action: June lean hog futures fell $2.275 to $83.025 and nearer the session low. Prices also closed at a contract low close. For the week June hogs lost $1.075.
5-day outlook: Friday’s technically bearish contract and weekly low close set the table for follow-through, chart-based selling from the lean hog futures speculators early next week. The hog market bulls are frustrated futures prices are getting no help from the recent rise in the CME lean hog index. Wednesday’s official quote matched the preliminary figure at $78.42. Thursday’s preliminary calculation shows the cash index rising another 71 cents to $79.13. There remains pessimism about the hog market’s rally potential during the summer months, as well as concern about the fall outlook, which continues to weigh on the deferred lean hog futures contracts. The noon pork report today showed cutout value rose $2.01 to $85.74, led by gains in hams and bellies. Movement was 102.03 loads.
30-day outlook: Hog market bulls should still have some optimism about price action in the coming weeks. Hog slaughter levels typically see annual lows in June and July. Meantime, consumer demand during the grilling season surges to its annual highs between the Memorial Day and Independence Day holidays. Still worrisome, however, is elevated hog and pork production. Grocers’ apparent refusal to pass along lower wholesale pork prices to consumers remains a negative element for the hog market.
90-day outlook: While domestic demand remains an issue for the hog and pork complex, the lower prices may start to produce better U.S. pork export numbers. This week’s USDA pork export numbers were not great, however. The agency reported that for the week ended May 11, pork exports were 31,949 metric tons, well below recent highs in the 50,000-55,000 MT range. Still, recent pork shipments have reached levels comparable to those seen in the spring of 2021, when good Chinese buying pushed prices higher. The surge in the U.S. dollar index to a seven-week high this week, making U.S. pork more expensive on the world market, will somewhat counter the recently lower pork complex prices.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed needs covered in the cash market through May.
Price action: June cattle futures advanced 20 cents to $165.725 at Friday’s close; that represented a weekly gain of $1.325. August feeder futures climbed another 60 cents to $235.10 to end the week, which marked a weekly surge of $6.125.
5-day outlook: Despite the historical tendency for cash cattle and beef prices to decline after grocers have completed their wholesale purchases for Memorial Day features, those markets proved quite firm this week. The Monday-Thursday average for direct-market cattle came in at $174.31, which marked a 42-cent rise from the comparable week-ago figure and above last week’s full average at $174.13. We expect this week’s average to come in a few cents higher as well. And while beef prices slumped early in the week, today’s midsession quote for Choice beef cutout rebounded $2.88 to $301.19. History suggests continued spot market weakness next week, but we suspect the tightness of market-ready supplies will limit the downside in cash and wholesale values.
Next Monday’s live cattle opening is unlikely to be greatly affected by today’s USDA Cattle on Feed report since it proved largely neutral. Traders expected the May 1 feedlot population to fall 3.5% under year-ago levels in the wake of April feedlot placements and marketings falling 3.7% and 9.7% under comparable year-ago levels, respectively. USDA stated last month’s placements 4.2% under last year, indicating a slightly lower number than expected. One less April workday likely accounted for about 5% of the April marketing reduction, with the balance of the 10.1% annual drop reflecting the tightness of market-ready supplies, as well as producer reluctance to take low-ball packer bids late in the month. Those shifts put the feedlot population at 11.608 million head, down 3.4% from last year and virtually matching the average of pre-report estimates. Feedlot supplies remain tight and are likely to remain so over the short run.
30-day outlook: Grocers will likely become more aggressive in the wholesale market after Memorial Day since they’ll be buying for features over Father’s Day weekend as well as the Independence Day holiday. This seems to bode well for the cash cattle and beef markets. Our research on similar years when steer weights are consistently running below year-ago levels during spring suggests a significant chance the market will hit at least a temporary low in the cash market next month, followed by a moderate early-summer rebound. The historical tendency for consumer demand doldrums after Independence Day could mitigate market strength at that juncture. We must also point out that steer weights (for the week ended May 6) rebounded five pounds to 895 pounds per head. That will likely be followed by a big drop in next week’s report, but the fact that weights are only three pounds below year-ago suggests producers are losing market currentness and allowing a comparative increase in the supply of market-ready cattle. If weights move above year-ago, it may tend to undercut the cash market this summer.
90-day outlook: Some years experiencing similarly tight market-ready fed cattle supplies did not post a summer low until September. Indeed, the most recent similar year, 2019, saw cash cattle prices rebound from a June low only to have the market stall around mid-summer, then drop to fresh lows in September. Thus, while the intermediate-to-long-term price outlook for fed cattle remains promising due to the ongoing cyclical reduction of the U.S. beef cattle herd (and the resulting shortage being prolonged/exacerbated when producers begin holding back heifers for eventual herd rebuilding), summer 2023 prospects can’t be taken for granted by bulls. This could prove especially true if elevated cash cattle and wholesale beef prices cause grocers to begin actively hiking prices charged to consumers. Similar actions in 2014 caused a two-year bear market in cattle futures, although the herd liquidation phase of the cattle cycle was much further along.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
