Livestock Analysis | May 27, 2022
Price action: June lean hog futures fell 70 cents to $110.40. July hogs fell 10 cents to $111.725, a four-week high and a gain of $2.725 for the week.
5-day outlook: A strong performance this week has hog futures poised to extend gains next week as the summer grilling season begins. Cash market fundamentals continued to improve this week and will likely do so next week. The CME lean hog index was up another 53 cents to $104.40 (as of May 25), the seventh straight daily gain and the highest since late August. The next index quote is expected at $104.93, up another 53 cents. Further strength in wholesale pork would also support futures. Pork cutout values gained 39 cents early today to $108.52, led by gains in ribs and hams.
30-day outlook: Summer-month hog futures hold premiums of about $6 to the cash hog index, suggesting the cash market will continue to seasonally rise into the summer. High retail beef prices are also likely to bolster consumer demand for the less-expensive pork cuts. A solid rebound in the U.S. stock market late this week suggests recession concerns have waned, a bullish factor for livestock markets.
90-day outlook: Export demand will be one key to long-term price direction. USDA this week reported net U.S. pork net sales up 52% from the previous week and up 39% from the four-week average. For the cash and futures markets to remain elevated, U.S. export sales will have to remain strong. The U.S. dollar index has backed well down from its 20-year high scored earlier this month, which may help make U.S. pork more competitive on world markets.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through May and all corn-for-feed needs covered through mid-June.
Price action: August live cattle fell 20 cents to $132.40, up 85 cents for the week. August feeder futures dropped 35 cents to $166.325, which represented a weekly gain of $2.40.
5-day outlook: Continued strength in wholesale beef market continued could boost cattle futures next week. Choice beef cutout values rose 96 cents early today to $264.95. That strength probably powered modest cash gains as well, with the Monday-Thursday average climbing to $138.93 from $138.46 for Monday-Wednesday. That was still down $1.33 from the week-ago level, although the weekly difference was also reduced from $1.75 seen yesterday. Given grocers’ historical tendency to boost buying early in most months, this bodes well for next week’s cash and wholesale trading. But fed cattle supplies are rising on a seasonal basis, which may limit the market’s upside potential.
30-day outlook: Grocers regularly buy beef more actively during the first half of most months, which could translate into sustained cash and wholesale firmness over the next two weeks or so. But history indicates early-month strength in cattle prices tends to diminish quickly. Grocer buying during the second half of the month typically slows, which, combined with higher supplies, could leave futures vulnerable to declines. High retail beef prices will continue to fuel concern over demand.
90-day outlook: With the summer doldrums looming after Independence Day, beef demand is set to decline seasonally for several weeks. Meanwhile, fed cattle marketings will surely reach some of the largest levels of the year. Whether prices will fall significantly below likely early-summer lows is open to question. The biggest obstacle to potential summer strength is the elevated cost of beef faced by consumers. As long as beef prices remain high, demand is likely to suffer and limit upside potential of both the cattle and beef markets. Still, a late summer/early fall rally is likely. History suggests the advance probably won’t match the size of the gains indicated by the fourth-quarter contracts, especially if current recession fears prove justified.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
