Livestock Analysis | December 22, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Nearby February futures lead the hog market higher Friday. It climbed 70 cents to $71.35; the close marked a weekly decline of 55 cents.

5-day outlook: Traders apparently remain confident about the short-term hog outlook, as indicated by the strong February futures close and the latest quotes for the CME Lean Hog Index. The index was officially stated at $66.69 for Wednesday, but Thursday’s preliminary figure dipped 44 cents to $66.25. A portion of the optimism implied by the futures premiums likely stems from the persistent firmness exhibited by wholesale prices. The midsession quote for pork cutout edged up 32 cents to $81.67. Moreover, primal ham values had peaked around $85.50 in mid-November and were quoted at $75.14 at noon today. The drop reflects much of the moderate price reduction to be seen in ham values in the wake of the mid-December cessation of grocer buying for Christmas dinner entrees. As we suspected, pork packers are reportedly cutting back sharply on Saturday’s operations, with the low daily kill pulling the weekly sum down to “just” 2.426 million head, down almost 10% from last week.

Next Tuesday’s trading could prove quite active, and potentially volatile, in the wake of this afternoon’s (2:00 pm CST) release of the USDA’s quarterly Hogs & Pigs report. It’s expected to show hog supplies dipping below year-ago levels in early 2024. See Evening Report for the USDA numbers and our quick take on them.

30-day outlook: In recent years the cash hog market has shown a tendency to dip to annual lows between Christmas and New Years. Given the big cash losses seen this fall, such a drop seems likely again this year. Conversely, traders are anticipating persistently strong consumer demand to be met by seasonally (and possibly cyclically) diminished hog numbers in the new year. We wouldn’t be surprised if slaughter keeps running above early 2023 next month but tend to expect a transition to totals running below year-levels by midwinter. Obviously, today’s USDA population data will offer further clues on that score. Price gains above depressed early-2023 levels wouldn’t be at all surprising.

90-day outlook: Cash hog prices have historically tended to rally from holiday lows to seasonal highs in mid-to-late winter, decline into late March or early April, then begin their spring surge to early summer highs. The chances of such a pattern in early 2024 seem particularly high, due in part to industry anticipation of sustained consumer demand strength and producer supply cutbacks. The early arrival of Easter next year, on March 31, could spur strong processor and grocer demand for hams as they work to prepare for that holiday. Wholesale ham strength might easily translate into similar strength in cash hog 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 corn-for-feed and soymeal needs covered in the cash market through January. 

 

 

Cattle

Price action: February live cattle futures fell 15 cents to $168.525 and near mid-range. On the week, Feb. cattle fell 82 1/2 cents. March feeder cattle futures closed up $1.025 at $224.40 and nearer the session high. For the week, March feeders rose $2.225.

5-day outlook:  Feeder cattle futures continue to lead on any daily strength in the cattle markets. Look for feeders to continue to lead daily price action next week. Traders today were awaiting further developments on cash cattle trade and this afternoon’s USDA Cattle on Feed report. Cash cattle trade picked up at mid-week on ideas packers were short-bought. Having the weekly kill reach 621,000 head, up 69,000 head or 12.5% implies considerable packer enthusiasm about the current situation. The cash cattle average price so far this week is up $1.36 from last week, at $170.07. The noon report showed wholesale beef cutout values up, as Choice grade gained $1.05 to $292.18 and Select rose $1.63 to $262.90. Movement at midday was 60 loads. The Choice-Select spread is presently $29.28.

Today’s cattle-on-feed report stated the December 1, 2023 large-lot feedlot population at 12.006 million head, up 2.7% from year-ago. That topped industry expectations for a 2.2% annual increase. The industry expected November feedlot placements to fall 3.8% short of year-ago, but the official USDA figure came in at 1.868 million, down just 1.9% annually. November marketings sank 7.4% from last year, which may have a somewhat negative impact on the market since traders expected a 6.7% annual drop. Look for live cattle futures to drop on next Tuesday’s opening, since the results were unanimously slightly bearish, although none were especially negative.

30-day outlook: Today’s personal consumption expenditures (PCE) inflation readings for November, which are closely monitored by the Federal Reserve, came in lower than expected. Cooling inflation expectations and recently dovish-monetary-policy rhetoric from the Federal Reserve have given the general marketplace, businesses and consumers more upbeat attitudes, which this week pushed the U.S. stock indexes to new highs for the year. That scenario bodes well for better consumer demand for beef at the meat counter in the coming weeks.

90-day outlook: Cash cattle prices have dropped significantly from October levels. This will likely limit feedlot operator interest in buying replacements, especially with the yearling herd likely to decline into 2025. Operators holding back heifers for the breeding herd will reduce supplies even more. Seasonal patterns suggest fed cattle supplies will decline into late winter and history indicates prices also peak in years the cattle population hits a cyclical bottom. Bullish cattle traders are thinking there’s a good chance an early-2024 price rally could take the cattle markets back toward last June’s highs.

What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.  

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

Feed needs: You have all corn-for-feed and soymeal needs covered in the cash market through January.

 

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