Livestock Analysis | June 9, 2023
Price action: Expiring June hog futures edged up 20 cents to $87.875, while August lean hog futures rose $1.525 to $83.95, near the daily high and for the week up $1.65.
5-day outlook: The lean hog futures market has been trending higher the past couple weeks on improving cash market fundamentals. The futures price action suggests a seasonal price bottom is in place. The latest CME lean hog index saw Wednesday’s official quote match the preliminary figure at $83.80. Thursday’s unofficial number rose another 48 cents to $84.28. The noon pork report today showed cutout value remains in a general uptrend, rising another $3.74 to $89.42. Movement at midday was good at 204.81 loads. Hog slaughter is also running slightly below depressed year-ago levels; this could also provide support for prices.
30-day outlook: Hog traders will continue to monitor grocer features in the coming weeks. If they continue to actively feature beef and keep retail pork prices elevated, rally potential for cash hogs and futures will be limited. However, if rising wholesale beef prices prompt grocers to switch to featuring pork, the hog and pork markets could rally this summer. It seems the record high cash cattle and futures prices at present should continue to provide at least some upside support for the hog markets.
90-day outlook: Thursday’s weekly USDA export sales report showed U.S. pork sales of 25,500 MT for 2023 were up 13 percent from the previous week, but down 11 percent from the prior 4-week average. There was decent demand from China, at 8,100 MT. However, pork exports of 25,100 MT were down 26 percent from the previous week and 31 percent from the prior 4-week average. U.S. pork sales abroad will have to pick up the pace in the coming months for the cash and futures markets to sustain good price uptrends. The recent strength of the U.S. dollar on the foreign exchange markets is not helping U.S. pork export potential.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through mid-June.
Price action: Expiring June live cattle futures fell 55 cents to $178.225 Friday, while most-active August dropped 40 cents to $171.85. That represented a weekly drop of $1.05. August feeder futures posted a strong late surge and ended the week at $239.00, which marked a daily rise of 35 cents but fell $2.90 on the week.
5-day outlook: Traders continue to anticipate a big seasonal reversal in fed cattle prices in the coming weeks. That’s made most evident by the June contract, which will expire on Friday, June 30. The Monday-Thursday average of cash cattle trading so far this week dipped to $189.06 as Southern Plains cattle began changing hands yesterday, while choice beef cutout jumped another $2.25 at noon today, reaching $330.98. Select cutout leapt $2.47 to $306.57. The former is now within striking distance of the August 2021 high of $348.03, the second highest on record behind the Covid-driven spike of spring 2020. We’re not convinced the beef market will challenge the high from two years ago, especially if grocers complete their buying for Independence Day features by Wednesday, June 21 (which is about the normal time for grocers to complete holiday-related buying). Conversely, we wouldn’t be surprised if late-June cash losses prove smaller than projected by nearby futures.
30-day outlook: The timing of the August 2021 spike suggests bears shouldn’t get overly comfortable with their positions. They’re clearly expecting a sharp seasonal downturn later this month. In fact, the August futures’ discount to the already-discounted June futures price implies traders expect the cash market to continue weakening into late summer. The cattle/beef complex’s history of summer weakness at least partially justifies that pessimism. In addition, after running 20 pounds under year-ago levels as recently as early April, the latest reading for steer dressed weights (as of the week ended May 26) came in one pound over year-ago at 883 pounds/head. We believe producers marketed cattle very aggressively in spring 2022, so this latest development isn’t especially negative, but it does weaken the argument for extremely tight market-ready cattle supplies in feedlots. Still, the possibility of active grocery-industry buying for Labor Day features, as was apparently the case in 2021, holds the potential to boost cash and futures prices once again. A surprisingly large hog/pork rally in July would probably signal a grocery industry shift away from beef and would reduce the possibility of a fresh cattle/beef peak.
90-day outlook: As noted above, the late summer-early fall outlook likely depends upon grocers’ focus for Labor Day. We suspect they’ll shift their attention to cheap pork, which would likely power a surprisingly strong hog advance this summer, whereas the cattle market might easily disappoint bulls. We don’t see feedlot cattle supplies growing all that substantially, due to the ongoing herd liquidation/culling by ranchers. But we must point out that the 2014 spike to record high cattle and beef prices was followed by a two-year bear market. We think the current herd reduction phase of the cattle cycle has at least another year to run, but we think demand will diminish in the short run, thereby tending to limit the intermediate-term upside for prices.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through mid-June.
