Livestock Analysis | March 22, 2024

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Hog futures ended the week in mixed fashion, with deferred contract gains deviating from slippage in nearby April. The latter ended the day down 32.5 cents at $84.575. That represented a weekly drop of $2.35.

5-day outlook: The hog and pork industry seems to be anticipating a bout of short-term seasonal weakness, or at least flat short-run prices. That’s indicated by April futures falling to a premium of just over 50 cents to the preliminary reading for Thursday’s hog index. It’s expected to inch up 5 cents from Wednesday’s official quote (at $83.54) to $83.59. That might indeed prove to be the case if grocers curtail their buying ahead of Easter next weekend. We still suspect they’ll be heavily focused on hams in the interim. On the other hand, after suffering sustained weakness earlier in the week, pork cutout surged $2.51 to $94.69 on sizeable pork loin, rib and belly gains this morning.

Packers will likely curb operations late next week, although actual industry cutbacks usually occur on Easter Monday. This week’s slaughter contradicted recent indications hog supplies are falling below year-ago levels. The preliminary total for this week reached 2.532 million head, which represented a 66,000 head (2.7%) rise from last week and a 60,000 head (2.4%) annual increase. This suggests bullish hopes that spring supplies will fall short of comparable year-ago levels may prove forlorn. Traders will be extremely interested in the results of next Thursday’s (3/28) quarterly USDA Hogs & Pigs report. We think seasonally and cyclically diminishing supplies, along with robust consumer demand, will continue supporting hog and pork prices next week.

30-day outlook: The April hog and pork outlook will partially depend upon the aggressiveness with which grocers feature hams for Easter and how well consumers respond to the anticipated bargains. Strong clearance would likely have the industry quickly looking to rebuild ham inventories, which in turn could amplify market strength arising from spring grilling demand. Conversely, minimal ham features and poor grocery-store clearance could act as a drag on the complex. Expect weekly slaughter totals to soon start declining significantly on a seasonal basis, whereas grilling demand should surge. Hog and pork prices should surge as well. The real question is how strong the advance proves to be. 

90-day outlook: The expected April surge in cash and wholesale values will very likely persist through at least mid-June, especially if spring hog supplies fall short of year-ago levels. Again, hog slaughter typically declines on a seasonal basis from around Christmas through Independence Day. If we are correct in thinking grocers will continue pricing retail pork at levels attractive to consumers, the traditional spring rally could prove quite strong. We tend to expect a spring-summer high in cash hog prices over $100.00.  

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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.

 

 

Cattle

Price action: Cattle traders are expecting a seasonal cash market peak in the near future, since futures sank despite cash prices advancing again this week. April live cattle slid 87.5 cents to $187.50, which represented a weekly rise of just 25 cents. Meanwhile, expiring March feeder futures skid 92.5 cents to $249.95 and next-nearby April tumbled $3.125 to $251.50. That latter close marked a weekly drop of 62.5 cents.

5-day outlook: Bulls and cattlemen still hold the upper hand in the cattle markets, as indicated by Thursday’s active trading at higher levels in cattle country. Northern cattle changed hands around $190.00, while those in the South mostly traded at $188.00. The five-market average for steers was $189.57. However, traders likely expect grocers to curb their beef buying until after Easter, with today’s sizeable drop in Choice cutout values (down $2.18 to $311.55) offering some confirmation on that point. They probably think feedlot marketings are growing less current, as indicated by the latest steer weight reading at 922 pounds per head. We still blame extremely slow packer operations and extraordinarily mild March weather for the contra-seasonal rise in weights but having them rise so steadily is worrisome. On the other hand, the Choice-Select spread remains comparatively wide for this time of year. Next Monday’s futures action could be dictated by the results of this afternoon’s USDA Cattle on Feed report. See Evening Report for results and commentary.

30-day outlook: Long-term averages suggest it’s not uncommon for the cash cattle market to reach a seasonal peak in mid-to-late March. The big rise in weights suggests that might happen this year, although long-term cycles going back to the 1970’s also indicate a tendency for the cash price of fed cattle to peak when the population cycle is at its lowest. Given our suspicion that U.S. cattle numbers won’t bottom until next year, this may mean a short-term top will be exceeded next year. Another big question about the outlook stems from seasonal tendencies in cattle supplies. That is, summer cattle slaughter has long tended to exceed early-spring levels, but that wasn’t the case last year. If this year’s kill rates repeat those from 2023, the widely anticipated spring-summer price drop may prove quite small. That could prove particularly true if grocers continue holding the line on retail beef prices, thereby facilitating sustained consumer demand strength.

90-day outlook: We tend to doubt the cattle and beef markets will prove as strong this spring and summer as they were at the same time last year. Again, much depends on how aggressively grocers feature beef. We tend to doubt feedlot supplies will prove particularly large, especially given the current position toward the low end of the cattle population cycle. The equity markets are certainly suggesting the economic outlook remains strong, which should also support beef demand strength. Ultimately, we view summer live cattle futures as being fairly priced.

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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.

 

 

 

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