Livestock Analysis | August 18, 2023
Price action: October lean hog futures rose $2.975 to $82.125, near the session high and up 80 cents on the week.
5-day outlook: The lean hog futures bulls produced a big “save” late this week, after prices hit a six-week low on Wednesday. Friday’s technically bullish weekly high close provides the hog bulls with fresh momentum to show follow-through buying early next week. However, cash market fundamentals have eroded a bit this week and may limit the short-term upside. The CME confirmed Wednesday’s hog index quote today, officially stating it 71 cents lower at $100.32. Thursday’s preliminary figure marked another 71-cent drop to $99.61. The national direct five-day rolling average cash hog quote today is $94.51. The noon report showed pork cutout value fell $1.57 to $106.22, led by losses in ribs and loins. Movement at midday was solid, however, at 245.05 loads. The approximate $19 discount the October futures contract holds to the CME cash index suggests hog traders are not confident about the cash hog market fundamentals heading into autumn.
30-day outlook: BLT and grilling seasons are winding down and hog slaughter levels are starting a seasonal rise. Continued buying and storage of hams for the year-end holiday season will likely continue through September. However, weaker consumer demand and rising supplies will likely pressure cash hog and pork prices. Conversely, retailers have shifted features away from beef, suggesting an improvement in demand for pork. If hog slaughter levels don’t rise significantly above estimated USDA numbers, the downside for futures may be limited.
90-day outlook: Weekly U.S. pork export sales of 28,700 MT for 2023 were up 29 percent from the previous week and 36 percent from the prior 4-week average. Exports of 28,600 MT were up 7 percent from the previous week and 11 percent from the prior 4-week average. These are better pork export numbers, but the pace of shipments will have to improve in the coming months in order for the cash hog and futures markets to sustain price uptrends. The recent appreciation of the U.S. dollar on the foreign exchange market may continue to be a drag on better U.S. pork sales abroad.
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: Cash corn-for-feed and soymeal coverage expired in mid-August. Wait on signs of market lows before extending coverage.
Price action: Expiring August live cattle futures rose 47.5 cents to $178.525 Friday, while most-active October rose 50 cents to $178.825. That closing price marked a weekly decline of $2.50. Expiring August feeder futures surged $1.30 to $245.575, with the October contract gaining $1.37.5 to $250.70. The latter close represented a weekly loss of $2.175.
5-day outlook: Packers and bears retained the upper hand in cash and futures trading of fed cattle this week after strong futures selling last Friday persuaded feedyard managers to take lower bids late last week. The bifurcation between the southern and northern markets continues, but they generally lost above $2.50 versus week-ago levels in Monday-Thursday trading so far this week. However, bears and the packing industry buyers seem likely to have a much tougher time forcing the markets lower next week, since wholesale beef prices turned decidedly higher this week. For example, in the wake of Thursday’s $5.15 jump in choice grade beef values, today’s midsession quote for choice cutout marked a leap of $13.09 from last Friday’s close.
Today’s USDA Cattle on Feed report may bode well for next Monday’s futures opening, since it stated the August 1 U.S. large-lot feedlot population at 11.030 million head (down 2.3%) from last year, and slightly below the pre-report survey average. The cause of the modest disparity was the July placements figure at 1.618 million head (91.7%) of last year, whereas a result at 94.5% of last year was anticipated. The marketings figure at 94.7% of last year reflected the tight market-ready supply/reduced packer activity pace seen last month. It virtually matched the forecast average at 94.8% of year-ago.
30-day outlook: History suggests grocer buying of wholesale beef for planned Labor Day features will start dwindling next Wednesday, although significant bursts of buying could provide intermittent support in the days following. The industry also saw a much larger pre-Labor Day rally in similar circumstances two years ago, so a seasonal downturn from next week is not at all guaranteed. Market-ready supplies apparently remain tight despite the packer slaughter cutbacks since early summer. Look for the cash and futures market to remain well supported.
90-day outlook: Weekly slaughter has averaged 6.7% below year-ago since Independence Day, well above the nominal supply reduction implied by Cattle on Feed numbers 3%-4% under last year. And yet, average steer dressed weights rose just 13 pounds between the seasonal bottom in early June and early August, whereas the five-year average indicates a normal rise of 19 pounds. Moreover, after recently dipping to the $23.00-$25.00 area, the price spread between choice and select-grade beef values has surged back to the $28.00 area. This implies the comparatively severe shortage of choice grade cattle and beef persists. Thus, packers may continue finding it difficult to keep cash and futures prices for fed cattle from rising this fall. We worry about premiums built into the fourth-quarter contracts ultimately proving to be self-defeating prophecies, but that isn’t looking likely at this time.
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: Cash corn-for-feed and soymeal coverage expired in mid-August. Wait on signs of market lows before extending coverage.
