Livestock Analysis | April 22, 2022

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Hogs

Price action: June lean hog futures rose $1.60 to $118.775, up 30 cents for the week.

5-day outlook: Hog futures bounced back strongly following three sharp down days. Still, this week’s price action set up a bearish head-and-shoulders top reversal pattern on the daily bar chart for June futures, which will keep the hog market bears confident heading into trading early next week. Strength in cash market fundamentals will work to offset the bearish chart pattern, however. The CME lean hog index was up 32 cents today to $101.25, the highest since April 4. The index on Monday is expected to rise another 10 cents to $101.35. Pork cutout values early today gained $2.00 to $112.20, a multi-week high as hams and loins led gains. Movement was solid at midday at 244.64 loads. The national direct five-day rolling average cash hog prices today was quoted at $100.70.

USDA’s Cold Storage Report today showed U.S. pork stocks as of March 31 at 487.2 million lbs., up 7.3 million lbs. from a month earlier and contrary to the typical drawdown, which averaged 18.6 million lbs. during the previous five years.

30-day outlook: To keep cash hog and futures prices at elevated levels, U.S. export sales numbers will have to improve. USDA this week reported net weekly pork sales down 46% from the previous week, down 55% from the four-week average and a marketing-year low. USDA forecast U.S. pork exports in 2022 will drop 6.2% from last year, partly due to lower Chinese demand. Still, the strong seasonal patterns of declining hog slaughter and vigorous grilling season demand should power cash prices higher. Whether that will justify the premiums built into spring-summer futures is open to question.

90-day outlook: There are positives on the horizon for hog producers. After a cool spring over much of the U.S., temperatures are finally rising, and the grilling season will be in full force in the coming weeks. Combine that with expensive beef cuts at the meat counter and consumer demand for pork should be strong in the coming months. Also, USDA has projected a decline in hog numbers coming to market this summer, so the seasonal reduction will be exaggerated by the cyclical decline, which should further bolster cash and futures prices.

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 fell $1.475 to $138.425, up $2.00 for the week. May feeder futures settled 97.5 cents lower at $163.875, a weekly gain of $2.10.

5-day outlook: Cash cattle prices proved surprisingly strong this week, with the Monday-Thursday average for the five direct-market areas reaching $143.00 even, slightly below the $143.22 peak reached in the last week of February. What was even more surprising about the cash strength was the packing industry’s strong preference for delaying cash trading during weeks ahead of USDA’s Cattle on Feed Report. This week’s higher bids suggested packers need animals, indicating cash trading may extend strength over coming weeks, although cash trading in the last week of most months tends to be weak. Also, this week’s decline in beef cutout, with choice cutout slipping 38 cents to $269.79 at noon today, wasn’t encouraging.

USDA’s Cattle on Feed Report looks bearish for Monday’s futures opening, since the March placement total, at 1.990 million head, essentially matched the year-ago figure. A 7.8% annual decline was expected. When combined with the marketings figure at 2.000 million (down 2.0% year-over-year), those shifts put the April 1 U.S. large-lot feedlot population at 12.105 million head, up 1.7% from the comparable 2021 figure when a flat reading was projected by industry analysts.

30-day outlook: Cash strength over the past two weeks sets the stage for possible followthrough strength in early May. Such gains are rather rare, since cattle slaughter routinely increases substantially through the April-May period, thereby triggering a seasonal price downturn before May 1 of most years. This week’s preliminary slaughter total, stated at 665,000 head by the USDA this afternoon, matched the year-ago figure, but doesn’t necessarily mean feedlot supplies are getting more current. Still, such cash strength this year, despite seasonally rising cattle/beef production, suggests robust export demand may be offsetting domestic demand weakness caused by inflated retail beef prices.

90-day outlook: The question for the cattle market over the next 90 days is whether recent strength justifies the minimal discounts built into the summer live cattle contracts. With cash prices reaching $143.00 this week, June and August futures ended the week at $138.425 and $140.375, respectively, despite the 10-year average implying an $11.00 decline from the spring high to the summer low.

The Cattle on Feed report suggests supplies will generally match those seen last year, while increased cattle weights indicate a moderate annual increase in beef supplies. It seems unlikely that grocers will substantially reduce the price of beef in their stores, so domestic offtake will probably diminish. The key seems to be export demand, which has recently proven comparatively strong. But whether that strength, if it continues, will prove vigorous enough to materially boost cattle prices is very much open to question. As a result, we’re looking at potential summer-fall hedges in the coming weeks.

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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