Livestock Analysis | April 14, 2022
5-day outlook: Lean hog futures ended mixed but still up for the week as a resurgent wholesale pork market helped offset slumping cash fundamentals. The CME lean hog index rose 9 cents today to $99.19, its first gain in nine days. The next index quote is expected to jump 60 cents. A continued recovery in the index, combined with pork cutout strength, could generate followthrough buying in hog futures early next week. June futures appeared to establish a near-term bottom with the April 5 low at $112.20, and a push above this week’s high at $119.10 could spark further fund-driven buying.
30-day outlook: Expiration of the April contract places greater focus on spring and summer month futures, which today settled at a premium of over $18 to the nearby. Continued strength in the wholesale market could fuel upside in futures, as retailers ramp up purchases for spring and summer grilling. With retail beef prices near record highs, pork may gain some substitution demand. Pork cutout values rose $1.73 yesterday to $108.53, near a three-week high.
90-day outlook: Futures could see further upside, or at least remain underpinned, with tighter numbers expected in the months ahead, based on USDA Hogs and Pigs report data, and high feed costs discouraging herd expansion. Barring a recession or other disruption, June futures may be poised to take a run at the contract high above $127.00. Slower export demand could limit price upside. USDA reported net weekly pork sales for the week ended April 7 totaling 24,000 MT for 2022, down 42% from the previous week and down 26% from the prior four-week average. Earlier this month, USDA lowered its outlook for U.S. pork exports in 2022, with shipments seen dropping 6.2%
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.
Price action: April live cattle rose 5 cents to $140.675, while most-active June declined 45 cents to $136.425, up $2.60 for the week. May feeder cattle fell 17.5 cents to $161.775, up $2.40 for the week.
5-day outlook: Grocers have likely been buying beef more aggressively for early-May features, which probably played a role in the cash market strength this week. The five-area average for Monday-Wednesday week reached $140.93, up $2.22 from the same period last week. Choice cutout values through yesterday surged to $273.47 but declined to $271.77 early today. Still, grocers are likely to accelerate their buying again early next week, which could give cash and futures prices another boost.
30-day outlook: Whether the seasonal strength we expect to continue next week will last into late April or early May is open to question, but grocer buying traditionally slows late in the month. This week’s cattle slaughter will likely fall well below year-ago levels due to some plant cutbacks for the Easter holiday. But forthcoming totals will probably climb seasonally through spring. Spring grilling demand often offsets to some extent the negative price impact of increased supply, but inflated retail beef prices threaten to diminish offtake and render the cash and wholesale markets more vulnerable to price losses. Summer futures are carrying surprisingly small discounts to recent cash quotes, which may render them vulnerable to a significant spring drop if beef demand disappoints.
90-day outlook: The premiums built into cattle futures from next fall into next spring imply a strong market advance over that period. Look for feedyard managers to respond by actively placing feeder cattle in lots in coming months. And while surging grain markets are translating into elevated feed costs, feeder cattle prices have been adjusting downward amidst negotiations between feedlots and ranchers. Deferred premiums may also encourage feedlot operators to slow summer and fall marketings, as they anticipate the promised price rally. This combination of strong placements and slow marketings is a formula for a backlog of over-fed cattle in feedlots and holds the potential to send prices significantly lower. This possibility demands a sense of caution on the part of producers.
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.
