Livestock Analysis | October 7, 2022
Price action: December lean hog futures fell 62.5 cents to $77.15, up 92.5 cents for the week.
5-day outlook: The USDA estimated this week’s hog slaughter at 2.558 million head, which represented a 1.6% annual decline. The September Hogs & Pigs Report implied hog supplies will run about 1% below year-ago levels, so this may mean relatively larger numbers are coming in the days ahead. But Friday’s strong October close puts the contract at a 30-cent premium to the preliminary CME Lean Hog Index figure for Thursday of $92.65, suggesting traders expect the cash market to strengthen next week.
30-day outlook: USDA’s report implied mid-autumn hog slaughter would average about 1.0% below year-ago levels. Conversely, pork demand seems to be weak versus year-ago; pork cutout climbed another $1.76 early today $103.17, compared to $106.99 a year ago. We believe a shortage of turkeys and diminished stockpiles of hams for the holiday season will continue providing solid underlying support for the hog market. Ham stocks ended August at 163.527 million lbs., down 18% from the average for the past 10 years. USDA’s Oct. 24 Cold Storage Report will offer further insight.
90-day outlook: Hog supplies are expected to fall about 1.5% under year-ago levels in November and remain near those lower rates into February. If we’re correct in thinking pork demand will hold up relatively well, as is often the case for red meat consumption during recessions, this seems to indicate late-2022 hog and pork prices will hold up much better than last year (when the hog index dropped to the $70.00 area in early December). The comparatively strong cattle outlook for fall and winter may be support hog prices. But economic uncertainty and U.S. dollar strength may continue weighing on the commodity sector.
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 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
Price action: December live cattle futures rose 17.5 cents to $148.05, up $1.00 for the week. November feeder cattle fell 80 cents to $175.625, up $1.00 for the week.
5-day outlook: December live cattle posted a technically bullish weekly high close, which, combined with cash strength, may lead to followthrough buying Monday. USDA reported live steers averaged $145.93 through Thursday morning, up from last week's $144.78 average. Wholesale beef has also showed strength, with Choice beef cutout values up 19 cents early today to $247.55. Feeder cattle futures will continue to monitor corn market.
30-day outlook: Seasonally tight cattle supplies are likely to keep a floor under cash prices over at least the next month. After rising in mid-September, steer dressed weights fell from 918 to 915 pounds per head during the week ended September 24. The Choice-Select grade spread at $28.89 early today indicates the tighter supply of cattle and beef grading choice or better.
90-day outlook: Long-term direction in the cattle market will be determined in large part on the U.S. and global economies. Stronger than expected growth in U.S. jobs during September may have eased recession concern to some extent, but the Federal Reserve is likely to continue its aggressive moves to rein in soaring inflation. A recession, or even the prospect of recession, may prompt consumers to cut back on pricier foods, such as steaks, and the strong dollar could curb U.S. meat exports. However, U.S. beef exports this year have remained robust, with a record 323.6 million lbs. shipped during August.
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 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
