Livestock Analysis | January 12, 2024

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Hog futures ended the day and week rather poorly. Nearby February fell 70 cents to $71.90 at Friday’s close. That represented a weekly rise of $1.90.

5-day outlook: Great Plains weather could greatly affect the hog and pork markets next week, since the snow and arctic conditions could limit farmer shipments to plants, as well as the packing industry’s ability to operate those plants at full speed. Indeed, this week’s weather reduced this week’s hog kill: the preliminary weekly total at 2.279 million head came up 410,000 head (15%) below year-ago, when a 1%-2% year-to-year increase was expected. The good news came from the wholesale market, where pork cutout again rebounded, reaching $87.51 at midsession Friday. An afternoon setback wouldn’t be surprising, but the noon quote marked the highest wholesale quote since mid-November. We tend to expect continued seasonal strength next week despite the 29-cent dip from (Wednesday’s official hog index quote at) $66.77 to Thursday’s preliminary figure at $66.48.  

30-day outlook: Although the history of the past five years has been more often marked by early-year hog/pork weakness, a return to the traditional seasonal norm of strength through January and early February seems more likely this year. That reflects anticipation of flat to slightly larger supplies and much improved demand over that seen in early 2023. We continue attributing improved demand to more aggressive pricing from grocers. For example, while December retail pork prices were essentially unchanged from year-ago levels, the latest figure fell 4.1% from October. We also expect packers, processors and grocers to actively work to feature hams for Easter this year (as opposed to the greatly elevated prices seen last spring). That would likely entail active processing industry buying of hams in the weeks just ahead, which in turn should support pork cutout values.

90-day outlook: The December 22 USDA Hogs & Pigs report implied hog slaughter during the February May period will run about even with those seen in early 2023. If considered outside of improved demand, supply-side implication of such a figure would be for relatively comparable hog prices. However, with pork cutout holding up much better than in mid-January 2023, this suggests packers will more actively pursue hogs for processing. In contrast, the latest quote for the hog index, under $67.00, is far below the Jan. 13, 2023 quote at 74.34. And while the index eventually fell to $71.18 on April 21 last year, it seems rather clear hog prices have room to rally if consumer demand remains robust, especially if grilling season demand surges as usual.

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 42 1/2 cents to $171.375 and nearer the session low. For the week, February cattle rose 80 cents. March feeder cattle futures rose 30 cents to $227.70, near mid-range and hitting a six-week high. For the week, March feeders rose $3.55.

5-day outlook: Not a bad week for the cattle futures markets bulls. Today’s bullish weekly high close in March feeders sets the stage for follow-through technical buying in that market next Tuesday. Markets are closed Monday for the Martin Luther King holiday. Focus next week will also be on wintry weather in cattle country. Heavy snow, blizzard conditions and extreme cold in the Midwest this week and in the coming days have reduced packers’ urgency to aggressively bid for cattle late this week, with only light sales so far at generally steady price levels in the far northern market. For many feedlot operators, getting cattle to market next week will be challenging, and the animals, themselves, will find it difficult to gain or keep weight. The noon report showed wholesale beef prices continued higher Friday, with Choice rising $3.69 to $289.58, while Select rose $2.08 to $272.02, taking the Choice/Select spread to $17.56. Movement at midday was 73 loads.

On the feed side, today’s solid losses in corn futures and new contract lows are a bullish element for feeder cattle futures next week.

30-day outlook: This week’s extreme wintry weather in cattle country will stress feedlot cattle, especially in northern states. That will likely reduce supplies of cattle and beef available to packers and retailers in the next couple weeks. However, presently elevated cattle weights may limit the cattle markets’ upside potential in the short run.

90-day outlook: Today’s producer price index report, which tracks inflation in the commodities sold for personal consumption, capital investment, government and export, showed prices unexpectedly declined 0.1%, month-over-month, compared to expectations for a 0.1% rise. That marks three consecutive months of deflation in producer prices. Today’s PPI data mostly mitigated Thursday’s higher-than-expected consumer price index report, thereby rallying the U.S. stock indexes back to near their recent 12-month highs. This is good news for the cattle markets as it implies better consumer demand for America’s favorite red meat in the coming months.

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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