Livestock Analysis | July 14, 2023
Price action: August lean hog futures fell 30 cents to $96.20 and near mid-range on the day. For the week, August hogs rose $1.05.
5-day outlook: It was not a bad week for hog market bulls as they kept the near-term price uptrend alive in August futures, which favors sideways-to-higher price action early next week. August futures’ discount to the cash market also suggests there is more upside for futures next week. Cash hog market fundamentals remain sound. The CME confirmed Wednesday’s calculated lean hog index at $100.29, up 93 cents from Tuesday. Thursday’s preliminary figure is up another 74 cents to $101.03. The national direct five-day rolling average cash hog price today was quoted at $100.02. The noon report today showed pork cutout value rose a solid $4.84 to $115.74, led by strength in hams and bellies. Movement at midday was decent at 153.76 loads.
30-day outlook: The hog market bears are anticipating a routine end to seasonal cash market strength in the next few weeks. However, countering that negative seasonal is retailers lowering prices at the meat counter beginning last month, which has produced a rise in consumer demand. With bacon prices averaging around 15% below last year’s levels during June, consumers are likely doing some more aggressive buying of bacon as the BLT season is here. Also a bullish element is that hog slaughter and pork production will likely remain near annual lows through the first week of August.
90-day outlook: The U.S. dollar index swooned this week and hit a 15-month low. Meantime, this week’s U.S. pork export sales of 24,500 MT were down 6 percent from the previous week and 9 percent from the 4-week average. Exports of 19,300 MT were down 46 percent from the previous week and 41 percent from the 4-week average. On the positive side, China led the buyers in this week’s report, and with the big drop in the USDX this week, it will make U.S. pork more competitive on the world trade markets in the coming weeks. Weekly slaughter rates typically in the second week of August and often represent a harbinger of declining late summer and fall cash and wholesale prices.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all July soymeal needs covered in the cash market, with half of your August needs also covered. You should have your July corn-for-feed needs covered in cash.
Price action: Sustained cash market strength sparked a $3.275 gain in nearby August live cattle futures to a contract-high close at $180.175. That marked a weekly rise of $3.175. August feeder futures ended the week at $246.65, which represented daily and weekly gains of $1.65, and $1.225, respectively.
5-day outlook: Despite signs of early-week slippage and Wednesday’s sharp setback, cash cattle turned decisively higher Thursday. The five-area average for Monday through Thursday reached $182.99, thereby topping the comparable week-prior result by $2.29, although the bulk of Thursday’s trading apparently occurred in Iowa, with few changing hands in the TX-OK, Kansas or Nebraska regions. But given today’s bullish futures response, packers are very likely going to have to pay up for cattle today. Packers are likely to point to sustained wholesale weakness in trying to keep a lid on the market, since choice cutout fell another 77 cents to $306.14 today and has lost about $37.00 since peaking at $343.09 on June 16. But that’s far smaller than the similarly-timed drop of early-summer 2021, and we still think an echo of the mid-summer 2021 advance (to the second-highest levels on record) is likely. We expect fresh cash market gains next week, which should support futures as well.
30-day outlook: The latest USDA reading on steer dressed weights inched up one pound from the week prior to 884 pounds per head. History indicates the usual summer-fall rise in cattle weights has begun, due largely to reduced supplies of calf-fed yearlings (placed last fall) in the slaughter mix. Still, the latest weight readings, as well as the choice-select beef price spread remaining quite wide at $28.37, point to persistently tight supplies of high-quality cattle and beef. History does suggest seasonal beef weakness will persist through the end of July, but we still think conditions similar to those of summer 2021 could spur fresh wholesale gains as Labor Day looms.
90-day outlook: The fall outlook likely depends upon the strength of consumer demand for beef. That is, the feedlot population implies persistent supply tightness through late summer. If producers keep moving cattle at or before scheduled marketing dates, the relative cattle and beef shortage will likely remain a supportive factor. The potential for grocers to start boosting retail beef prices well above those of the past 18-24 months remains a possible bearish development. Indeed, June increases in steak prices suggest a reduction of high-end consumer demand in the coming weeks and months. However, the retail cost of ‘other beef’ remained about 2.3% under year-ago levels last month. That suggests consumer demand for beef will remain robust over the short run, thereby providing underlying support for the cash and wholesale markets.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all July soymeal needs covered in the cash market, with half of your August needs also covered. You should have your July corn-for-feed needs covered in cash.
