Livestock Analysis

Posted on Fri, 12/13/2019 - 15:18

 Hogs

Price action: December lean hog futures expired 52 1/2 cents lower at $60.475. The February through July contracts posted gains of 85 cents to $1.60, though they ended well off session highs. For the week, February hogs firmed $1.95.

5-day outlook: Euphoria over the trade deal with China in principle fueled gains in the hog market today, as this would open the door for even more Chinese purchases of U.S. pork. But full details of the deal aren’t known yet and it hasn’t been signed, which caused futures to slip well off session highs. Attitudes toward the trade deal will guide the market next week, but price action could be volatile as traders try to sort out the details.

30-day outlook: The cash hog market firmed this week, signaling it may have put in an early seasonal low. Given strong packer margins, there’s incentive to keep kill lines as full as possible, though there’s no shortage of market-ready hogs. The cash market can be unpredictable between Christmas and New Years due to plant downtime, but downside risk should be limited.

90-day outlook: February hogs ended the week $9.62 above where the cash index will be quoted on Monday. The July contract finished just over $28 above the cash index. The five-year average gain for the cash market is $6.60 from Jan. 1 to the first week in February. The average gain is nearly $22 to the summer peak. Bottom line: Traders have bigger-than-normal rallies built into futures, which means there’s already some “China” premium in the market. Still, we will be cautious hedgers knowing a surge in Chinese demand could lead to a significant price rally.

What to do: Get current with feed advice. We’re not interested in hedges given volatility in the market.

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

Feed needs: You should have all soybean meal needs covered in the cash market through mid-January. You should be hand-to-mouth on corn-for-feed needs until prices show signs of bottoming.

Cattle

Price action: Some live cattle and feeder cattle rose to new contract highs today. February live cattle surged $2.45 to $127.55 and April futures rose $2.00 to $128.20. March feeders gained $2.80 to $146.25.

5-day outlook: The breakout to the upside should see fresh followthrough buying. Cash cattle traded steady this week, and traders will be looking for more of the same, with domestic demand still very good and likely to improve given the recent drop in wholesale prices since October. Beef prices rose $1.39 for Choice on Friday and $1.80 for Select. Beef packer margins fell to $95.75 from $171.05 a week ago, but that’s still a good profit.

30-day outlook: The U.S. and China reached a Phase 1 trade agreement that will lead to a boost in U.S. ag product imports, requires structural reforms and intellectual property right protections and rollbacks in tariffs and no new tariffs on Dec. 15. The deal needs to go through translations and legal reviews and may be signed in January. That could lead to increased beef sales to China.

90-day outlook: Slaughter is expected to slow in the first quarter. Cow slaughter has been huge recently, which may show up as a peak in the cattle herd and lend additional support to the market. With the U.S. unemployment rate at a 50-year low, that bodes well for continued strong demand

What to do: Get current with feed advice. While live cattle futures are showing signs of a short-term top, there’s still more upside potential after the correction.

Hedgers: Fed cattle producers should be out the 25% fourth-quarter hedges in December live cattle futures.  Carry all risk in the strengthening cash market for now.

Feed needs: You should have all soybean meal needs covered in the cash market through mid-January. You should be hand-to-mouth on corn-for-feed needs until prices show signs of bottoming.