Livestock Analysis | September 30, 2022
Price action: December lean hogs rose 50 cents to $76.225, still down $6.575 on the week.
5-day outlook: Concerns about the economic outlook, weakness in U.S. stocks, U.S. dollar strength and seasonal weakness in the cash hog market seem likely to continue into next week and burden hog futures. Thursday’s USDA Hogs & Pigs was price supportive, but nearby October slipped and the deferred contracts barely edged upward. Monday’s CME Lean Hog Index is expected to rise 7 cents to $95.21. Slumping wholesale prices are also pressuring futures. Pork cutout values fell $1.31 early today to $97.49, the lowest in over four months. Still, October future’s sizeable discount to the CME index may give it an upward bias, especially if the index stabilizes around current levels.
30-day outlook: USDA’s report implied hog slaughter will consistently fall 1%-2% under year-ago levels through fall and winter, which is modestly below pre-report expectations. Bears may be justified in their pessimism if this week’s preliminary slaughter total slightly above the year-ago figure (at 2.526 million and 2.517 million head, respectively), presages more of the same during the coming weeks. We suspect the ham market will be a big key to the outlook for the next 30 days and for the quarter. That is, primal ham values are over 50% above the levels seen at this time last year. If their seasonal decline from that point proves modest, hog futures are probably underpriced. Conversely, a sharp ham breakdown might justify the pessimism built into the futures market.
90-day outlook: Consumer demand for red meat, pork and hams in particular, will be a factor in hog market direction through the balance of 2022. History indicates a strong tendency for seasonal weakness into the year-end holiday season. But we continue thinking red meat demand will hold up much better than is widely anticipated amidst widespread recessionary fears. Again, we think consumers reduce their visits to and purchases from restaurants during recessions, but use the dollars saved to buy more meat at the grocery store. If we’re correct in this regard, cattle and hog prices will probably perform better than expected. If not, prices could remain quite weak.
What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have 50% of October and 50% of November soybean meal needs covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
Price action: December live cattle futures fell 72.5 cents to $147.05, down $1.50 for the week. November feeder cattle fell $3.20 to $174.625, down $3.625 for the week.
5-day outlook: Look for some followthrough technical selling in cattle futures early next week, especially in feeders. Cash market fundamentals were mixed late this week. Live steers in five top feedlot areas averaged $144.66, up 11 cents over last week. Cash volume this week appears sufficient to clean up showlists, suggesting steady-firmer cash trade next week. However, Choice beef cutout values fell $1.26 early today to $244.82 as the market extended a slump to 18-month lows. Movement at midday was light at 47 loads. Feeder cattle futures were pressured by strength in the corn futures market. More gains in corn next week would continue to put price pressure on feeder futures.
30-day outlook: The global financial markets are facing a historically turbulent period, which is cause for concern in agriculture futures. The U.S. stock indexes are in or close to bear market territory and recession fears are growing, which could somewhat crimp consumer demand for higher-priced beef cuts. However, we believe any U.S. economic slowdown would not have a serious negative impact on domestic consumer demand for beef. The surging U.S. dollar index that hit a 20-year high this week is also making U.S. beef exports higher-priced on the world export market.
90-day outlook: USDA’s Cattle on Feed report last week showed the Sept. 1 feedlot population just 0.4% over year-ago levels. However, since mid-August, cattle slaughter has averaged about 4% over last year. This suggests good packer and grocer demand for cattle/beef in the fourth quarter. The historically wide Choice-Select grades spread ($24.18 in today’s noon report) suggests market-ready cattle supplies are tight—implying this week’s sell off in futures was overdone and that a price floor is in place, or close at hand.
What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have 50% of October and 50% of November soybean meal needs covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
