Livestock Analysis | March 18, 2022

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Hogs

Price action: April lean hog futures fell 95 cents to $99.40, the contract’s lowest closing price since Feb. 2 and a decline of $2.10 for the week. June futures fell 90 cents to $107.10.

5-day outlook: Hog futures collapsed under profit-taking late this week, though firmness in cash fundamentals suggests the market may find support early next week. Pork cutout values early today rose $4.71 to $109.91, led by hams. Movement at midday was 104.03 loads. The national direct five-day rolling average cash hog price on Friday was quoted at $102.19. The preliminary lean hog index quote is projected at $101.36, up 59 cents, a six-month high.

30-day outlook: USDA yesterday reported net weekly U.S. pork net sales of 38,300 MT, up 51% from the previous week and up 36% from the average for the previous four weeks. Better U.S. pork exports in the coming weeks, combined with still-high retail beef prices at the meat counter, should keep a floor under futures.

90-day outlook: USDA projects tighter hog supplies this summer, which should provide longer-term support for cash and futures. Also, a looming U.S. economic slowdown due to rising inflation and the Russia-Ukraine war could be supportive if consumers favor pork over pricier beef. Record-high gasoline prices and rising food prices, in general, will likely have American consumers filling their grocery carts with pork, more so than the higher-priced beef.

What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.

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

Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.

 

Cattle

Price action: June live cattle rose $1.15 to $137.075, the contract’s highest closing price since Feb. 28 and a gain of $4.125 for the week. April feeder cattle rose $1.225 to $162.325.

5-day outlook: This week’s cash cattle trading looks to average around $138.55, up about 25 cents from last week, but today’s strong close in April futures implies the industry expects further gains. Choice beef cutout values rose $2.56 early today to $259.61, indicating grocer demand is improving. Retailers may curb their buying after the middle of next week through the end of March, which may weigh on short-term prospects for fed cattle. As usual, the direction taken by the cash and wholesale markets will exert influence over futures. But look for trader attention to shift toward USDA’s March 25 monthly Cattle on Feed report. Live cattle prices will clearly remain a major influence over feeder futures. However, the latter could react sharply to big moves in the corn and/or soybean meal markets.

30-day outlook: Expect grocer demand for beef to surge in early April, especially with the belated arrival of Easter April 17, unofficially kicking off the spring grilling season. Fed cattle marketings seem active enough to force packers to pay up for fed cattle this spring, but they’re large enough to limit upside price potential. Greatly elevated retail prices also appear likely to crimp consumer buying and the market’s upside. Look for the ongoing spring expansion in market-ready fed cattle supplies to shift the supply/demand balance to favor packers by late April, thereby opening the door to the usual late spring-early summer price decline.

90-day outlook: Consumer demand for the grilling season typically surges after Easter and remains elevated through Independence Day, which tends to spur grocer buying from a few weeks before Easter through mid-June. Still, the seasonal increase in fed cattle supplies usually drags the cattle and beef complex lower as summer looms. We don’t see feedlot numbers being particularly burdensome and elevated feed costs and discounts in summer fed cattle futures will likely cause producers to keep marketings generally current, which should mitigate the seasonal decline. However, we view the sizeable premiums built into fall 2022 through spring 2023 futures contracts as troublesome, since those will encourage feedlot placements and laggardly marketings as summer passes.

What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.

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

Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.

 

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