Livestock Analysis | December 2, 2022
Advice: We advise livestock producers to cover all corn-for-feed needs in the cash market through December.
Price action: February lean hog futures surged $1.225 to $90.425, up. $1.925 for the week and the contract’s highest close since Nov. 17.
5-day outlook: Hog futures posted a strong weekly advance amid signs the cash market may be close to a near-term bottom as grocers make their final push of ham purchases for Christmas and New Year features. Pork cutout values climbed $2.44 to $89.46 by midday today, powered by sizeable ham and pork belly gains. Next week’s slaughter will likely be large on a seasonal basis and the total for the following week likely will be the largest of the year. That would reflect a seasonal supply peak, as well as active packer operations as they prepare for widespread shutdowns and slowdowns during the year-end holidays. This week’s kill reached 2.590 million head, down 2.5% from a year-ago. December futures settled 81.5 cents under today’s CME lean hog index, indicating traders sense a seasonal low is close. Monday’s index is expected to drop another 37 cents to $82.87.
30-day outlook: Cash and wholesale strength in the short run might easily be followed by another dip to annual lows as seasonally large hog supplies meet weak packer demand during the holiday season. However, the market is unlikely to spend much time at such low levels as the industry gets back to full work schedules in the new year. The industry will also get a better look at the 2023 hog supply outlook when the USDA releases its quarterly Hogs & Pigs report Dec. 23. We expect the report to reflect continued contraction of the U.S. hog herd due to the implicitly bearish forecasts indicated by deferred futures, along with the high cost of feed and other inputs.
90-day outlook: History indicates the cash hog market tends to rally from its December low into mid-to-late February, then work sideways-to-lower into early spring. We see little reason to expect the market to deviate from that general pattern, although we expect a strong early-year rally and considerable firmness as spring rolls around. We think the market will match or exceed the summer highs, around $122.50, posted in 2021 and 2022. That could be especially true if/when Chinese importers step back into the U.S. market to alleviate the extreme pork price inflation they’ve seen in recent months.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE -- Cover all corn-for-feed needs in the cash market through December. You also have all soymeal needs covered in the cash market through December.
Advice: We advise livestock producers to cover all corn-for-feed needs in the cash market through December.
Price action: February live cattle futures rose 45 cents to $155.875, up 75 cents for the week. January feeder cattle jumped $1.375 to $182.45, up $4.15 for the week.
5-day outlook: Today’s technically bullish weekly high closes in February live cattle and January feeders set the table for followthrough technical buying in both markets early next week. Cash market fundamentals remain overall bullish. Cash cattle prices rose in the northern market Thursday, with some feedlots holding out for still-higher prices. Trade in the southern Plains has been at mostly steady prices. Weakness in wholesale beef could limit buying interest. Choice beef cutout values fell $2.02 early today to a preliminary $251.55 on light movement of 46 loads. Select grade rose 66 cents to $225.66. The Choice-Select spread at midday narrowed to $25.89, suggesting still tight market-ready supplies in feedlots. We expect packers to continue to be aggressive bidders in the near-term.
30-day outlook: Weather in U.S. Plains cattle country this fall has been conducive for favorable feedlot performance and has kept the supply pipeline full despite tighter animal numbers in feedlots. However, winter weather could threaten the tighter cattle supplies coming to market. The already-tight market-ready animal supplies and the seasonal decline in cattle slaughter to annual lows in mid-to-late winter suggest cattle prices will continue to rise in the coming weeks.
90-day outlook: The performance of the U.S. and global economies will be key to cattle market direction in early 2023. Early today, the Labor Department today reported U.S. employers hired more workers than expected and raised wages in November. While today’s jobs report may prompt the Federal Reserve to continue aggressively tightening monetary policy, it also suggests the U.S. economy could have a soft landing and avoid recession. More jobs and rising wages, with the possibility of a U.S. recession being avoided in the coming months, bode well for continued strong consumer demand for beef. A weaker U.S. dollar could help U.S. beef prices be more competitive on the world markets.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soymeal needs covered in the cash market through December. You are now hand-to-mouth on corn-for-feed coverage.
