Livestock Analysis | April 19, 2024
Price action: Hog traders apparently ended this week expecting renewed strength next week. Most-active June futures surged $2.125 to post a Friday close at $104.825. That represented a weekly rise of $2.75.
5-day outlook: The cash hog and pork complex ended the week on a flat-to-mixed note. The hog index for Wednesday matched industry expectations by rising 10 cents to $91.46, but Thursday’s preliminary figure looks set to dip 11 cents back to $91.35. Meanwhile, after soaring Thursday morning, pork belly prices set back sharply from midsession highs, thereby limiting the daily rise in pork cutout. Conversely, primal pork values, with the exception of a slight loss in ribs, posted significant across-the-board gains at noon Friday, with the net result being a $1.06 rise in pork cutout, to $101.02.
And yet, futures surged strongly today, implying traders expect the seasonal advance in hog and pork values to be resume next week. One wonders if they were anticipating a relative reduction in hog supplies. That was not the case this week since the preliminary total at 2.485 head topped the year-ago figure by 32,000 head or (1.3%). Given the complex’s strong history of seasonally declining hog supplies and surging consumer demand, we see little reason to expect a short-term futures reversal to the downside. We expect next week’s monthly USDA Cold Storage report to indicate frozen pork stocks remain well below year-ago totals, which would also be price supportive.
30-day outlook: The next month will likely see grocer and consumer demand climbing toward a seasonal peak in mid-May, when buying for Memorial Day weekend will probably be near its strongest. And while buying will almost surely remain very strong through mid-June, when Independence Day demand will be in full swing, buying during the May time frame is generally judged to be stronger. On the other hand, hog slaughter typically doesn’t reach its annual lows until the weeks surrounding Independence Day. Thus, there is little reason to think the cash hog and/or wholesale pork markets will peak during the next month.
90-day outlook: One sign of the seasonal bottom in hog supplies around Independence Day is the comparatively low slaughter totals posted just before and after the holiday (i.e. few animals are backed up on farms around the holiday). How strongly the market proves during early summer may depend upon the relative strength of the pork belly market. Given the aggressiveness with which grocers have featured bacon this spring, as well as the reduction in frozen stockpiles seen early in the year, prospects for strong belly prices seem good. That could extend the seasonal hog market advance past Independence Day. An extremely tight belly market could sustain the rally into August.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
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 another month through April.
Price action: Expiring April live cattle futures edged up 30 cents to a Friday close of $181.475. Most-active June posted a matching gain to $175.675, which marked a weekly rise of $4.20. April feeder futures skidded 27.5 cents to $241.325, whereas May feeders declined 55 cents to $242.00. The latter move represented a $7.80 weekly surge.
5-day outlook: The cattle and beef complex ended the week on a mixed note, with nearby fed cattle futures edging higher while the deferred contracts and feeder futures posted modest declines. Wholesale prices firmed somewhat from recent lows but probably did little to encourage bulls. The cash market for fed cattle was very quiet through much of the week, with packers and producers apparently content until after the 2:00 pm (CDT) release of the monthly USDA Cattle on Feed report before getting serious about trading cattle. A few steers changed hands around $183.00 at midweek. See Evening Report for the report’s results. That will likely set the tone for the complex early next week. Ultimately, we think packer operations have to accelerate before traders can expect renewed cash market strength, and we doubt that’s going to happen quickly due to negative packer margins.
30-day outlook: The latest estimate indicates beef packers are still losing about $70.00 per head on cattle being processed, so we don’t expect increased activity, or higher bids, on their part until those move into the black. This is entirely in keeping with the futures market, with the April fed cattle contract implying the cash market will drop to the $181.00 area over the next 10 days, and June futures indicating cash quotes around $175.00 in late June. Cattle and beef demand would probably have to prove surprisingly strong to support the market above the implied levels over the next month.
90-day outlook: A sizeable seasonal decline would not be out of line with the historical tendency for spring losses posted by fed cattle values. We still expect demand from grocers and consumers to remain rather robust, but that could change if grocers push retail beef costs significantly above the levels seen during the first quarter. Demand would suffer, thereby further reducing cash market prospects during late spring and summer. Feedlot placements are likely to fall during the coming months, but accelerating feedlot marketings may be required to power a reversal to upside. Again, packer margins will likely need to improve substantially before that happens.
What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
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 another month through April.
