Livestock Analysis

Posted on Fri, 05/22/2020 - 14:32

Hogs

Price action: Hogs ended lower Friday and for the week. July hogs fell 1.275 to $55.90 and down $1.85 for the week. October futures fell $1.075 to $50.025 and down $1.375 for the week.

5-day outlook:  Cash hogs were mixed this week with little negotiated trade on Friday. The availability of market-ready barrows and gilts remains more than ample.  This is at a time when the supply chain remains under pressure.  While processing numbers have been on the rise, it’s a very delicate balance for packers to increase their daily slaughter totals when shackle space and available labor are limited.  This week’s kill rose to an estimated 2.130 million head, up 32,000 head from last week and down 180,00 head from a week ago.

Pork values were steady at midday as the cutout slipped 3 cents to $97.82. That’s still down more than $12 this week and will likely keep pressure on futures and cash markets next week. 

30-day outlook:  The story the next month will be all about Chinese buying of U.S. pork and how quickly restaurants and food service companies can resume operations. Prices ended this week under pressure on uncertainty about U.S./Chinese relations. The positive talk on trade has been overshadowed by China's power grab in Hong Kong, with Beijing moving to effectively bypass the city's legislature to implement national security laws. Residents fear the move will erode freedoms of speech, assembly and the press.  Democracy advocates called for protests against the legislation, and President Donald Trump said he would respond "very strongly."  This week’s USDA weekly export sales data showed China cancelled more of its prior purchases for a second straight week. While pork export shipments hit a marketing-year high with China as the top destination this market will pivot on whether China buys more.

90-day outlook: At the end of June, USDA releases its quarterly snout count. Traders will be anxious to see the size of cutbacks producers have already taken to the herd and their plans for farrowing going into the end of 2020.

What to do: Get current with feed advice. If futures get too far out in front of the cash market, it would be a hedging opportunity.  

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

Feed needs: You should have all soybean meal and corn needs covered in the cash market through the end of May.

Cattle

Price action: Mixed finishes Friday with June cattle down $1.10 to $97.70 and up 70 cents for the week. August cattle slipped 47.5 cents this week to close to $97.325 and October fell 95 cents to $99.40.

5-day outlook:  Cattle futures paused this week after prices touched an eight-week high and daily slaughter rose to a six-week high. Direct cash cattle trade was at a standstill.  Asking prices for cattle left on showlists are around $120 to $125 after most traded $115 to $120 this week. Most look for lower bidding from packers next week that may keep pressure on the futures despite the deep discount to cash prices. Boxed beef was lower at midday on light demand for moderate offerings.  Choice cutouts were 94 cents lower at $400.87 and Select was $6.47 lower at $376.06.  The focus of how to trade futures continues to be on how long the packing industry will support cash cattle prices as wholesale beef prices retrace their historic price rise. Most look for further declines in beef cutouts next week after falling over $50 this week. Market bears continue to talk about prices falling back below $250 before beef stabilizes.  

30-day outlook: This week’s production improvements have been welcomed and encouraging, but the reality of continuing production limitations is beginning to sink in. All the industry can hope for now is that production levels return to as close to 95% of the prior level as soon as possible. This means the backlog already created, likely pushing over 750,000 cattle this week, will grow, albeit more slowly, over the coming weeks. USDA carcass weight data released yesterday showed steer carcasses weighed 896 pounds, 43 pounds more than the 5-year average. Weights will seasonally increase until the fourth quarter. Beef demand faces headwinds from cheaper pork and chicken throughout the summer grilling season. Beef exports will remain slow until prices retreat.

90-day outlook: USDA’s Livestock Slaughter report showed an April cattle slaughter 2.239 million head, down 21% from last year and 23% below March. It was the smallest April cattle kill since 1963. The fed cattle slaughter of 1.654 million head was the lowest since 1966. The average steer/heifer carcass weight was 26 lbs. heavier than a year ago. Beef production was 80% of a year ago and the lowest since 1995. Beef freezer stocks fell just 2% from March at 114% of 2019 levels. The key to prices during the next 3 months will be how successful the lifting of lockdowns can bring back restaurant business and food service demand.

What to do: Get current with feed advice. For now, we are carrying all risk for fed cattle producers in the cash market with futures sharply below cash. 

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

Feed needs: You should have all soybean meal and corn needs covered in the cash market through the end of May.