Livestock Analysis | April 5, 2024
Price action: The hog and pork complex continues climbing seasonally. The expiring April hog contract ended Friday having risen 97.5 cents to $89.325, while most-active June jumped $2.90 to $107.90. That represented a weekly advance of $6.45.
5-day outlook: The current situation seems very supportive of the spring hog outlook. As suggested by Thursday’s data, the CME lean hog index for Wednesday surged 73 cents to $85.88. Moreover, today’s report indicated another 45-cent rise, to $86.31 when yesterday’s official quote is released next Monday. Despite the wholesale market’s decided tendency to give back large portions of big midsession shifts in pork cutout, that was not the case yesterday. Thursday’s ending quote represented a $3.24 jump to $98.15, the highest since last September. And despite a $12.00-plus midday dive in pork belly values today, gains in the other cuts, particularly hams, pulled cutout another 22 cents higher at noon.
Several pork packing plants were closed on Easter Monday, but a big weekend kill boosted this week’s estimated total to 2.421 million head; that’s up about 0.7% from last week and up 2.2% from a year ago. Still, we are inclined to credit strong industry demand rather than an excess of hogs at this point. Whether increased numbers persist is open to question. Nevertheless, we see little reason to expect a quick reversal of the hog and pork rally.
30-day outlook: The March 28 Hogs & Pigs report implied hog supplies from early April into mid-May will generally match their year-ago counterparts. We suspect the numbers will still tend to run a bit below year-ago levels, even if the USDA numbers are correct, because we think the industry is now pulling hogs forward to meet short-term demand. We should also see relatively consistent week-to-week reductions in hog slaughter as supplies decline on a seasonal basis. Meanwhile, we are seeing few signs of diminished pork demand from consumers. That will probably persist through spring unless wholesale beef prices prove extraordinarily weak.
90-day outlook: The Hogs & Pigs report suggested hog supplies will move about 1% over year-ago levels during late spring and maintain similar increases through summer. Despite having USDA consistently underestimate hog supplies throughout 2023 and the first quarter of this year, we are somewhat skeptical on this score. That’s partly due to suspicions USDA analysts have adjusted their expectations upward, but we are also somewhat skeptical of USDA’s estimated winter litter-size jump of over 4% annually. That smashed all former records on that point. We also expect consumer pork demand to remain robust, whereas ending February pork stockpiles had fallen substantially below those seen early last year. The big premiums built into summer futures are putting those prices at levels not seen since 2021 and 2022, but we don’t think producers need to look to build protection at those elevated levels just yet.
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.
Price action: June live cattle futures plunged $3.80 to $172.05, nearer the session low, hitting a three-month low. For the week, June live cattle fell $8.20. May feeder cattle futures lost $5.70 at $238.175, nearer the daily low and hit a three-month low. For the week, May feeders dropped $8.625.
5-day outlook: Today’s downdraft in cattle futures prices that produced technically bearish weekly low closes sets the table for follow-through chart-based selling pressure early next week. News of the highly pathogenic avian influenza (HPAI) outbreak in some dairy herds has cast a bearish psychological pall over the cattle sector. Bullish traders, especially, hate uncertainty, even though there have been no detections in the U.S. beef herd.
Today’s USDA report seemed encouraging since it indicated active cash cattle trading around $187.00 in Nebraska and Iowa-southern Minnesota Thursday. Officially, 7,672 head changed hands at $187.08, but a lot of cattle don’t get counted these days, as best indicated by such numbers and weekly slaughter between 500,000 and 600,000 most weeks. Today’s futures action likely represented packer efforts to force southern Plains prices lower, with the latest steer weight reading possibly being the trigger and maybe insuring they’ll be successful.
The noon report today showed wholesale beef cutout values mixed, with Choice up 1 cent at $297.16, while Select lost 94 cents to $295.11, taking the Choice/Select spread to $2.05. Movement at midday was 82 loads.
30-day outlook: The narrow Choice-Select spread at present suggests packer cutbacks that caused steer weights to rise during late winter are also creating increased amounts of Choice-grade product, pressuring prices. The big cutbacks are impacting currentness of feedlot marketings and increased market-ready supplies above short-term packer demand. The midwinter surge in steer weights suggests such. However, wholesale beef prices tend to remain strong into mid-May. If they resume their first-quarter advance, the recent cash and futures market declines may be short-lived and prices could rebound in the coming few weeks.
90-day outlook: Today’s U.S. employment report showed much-stronger-than-expected U.S. non-farm jobs growth, once again showing the U.S. economy is on solid footing. The stock indexes are near their recent record highs and consumer confidence is upbeat. The spring/summer grilling season is fast approaching. All of these bullish elements point to better consumer demand for beef at the meat counter 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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.
