Livestock Analysis | December 10, 2021
Price action: Increased early seasonal strength powered a fresh hog market surge Friday. December futures rose 62.5 cents to $73.05, while most-active February rose $3.20 to $81.025, up 47.5 cents for the week.
5-day outlook: Cash hogs have typically posted an annual low between Christmas and New Year’s Day in, but recent price activity indicates this year’s low may have arrived early, based on the CME Lean Hog Index. Today’s index rose 12 cents to $70.95, its fifth gain in the last seven days. The market will probably have plentiful hog supplies available during the year-end holiday season, but the recent wholesale market surge suggests improving demand will keep prices well supported. This week’s estimated slaughter, at 2.601 million head, was large seasonally but still down 2.1% from last week and down 5.6% from a year ago.
Pork cutout values jumped to $90.37 early today, up about $9.00 from the end of last week. Ham prices were still fluctuating and may slip further, but other cuts, such as pork bellies and loins, exhibited strength, suggesting late-year gains in those markets could offset the expected ham price breakdown. The fact that nearby futures led the market strongly higher late in the week suggests much renewed optimism on the part of industry insiders. Expiring December futures at $73.05 implies continued cash strength through next Tuesday’s expiration (since the index is now at $71.58.
30-day outlook: The market seems likely to stabilize during the week of trading prior to Christmas Eve. That seems especially likely given the scheduled release of USDA’s quarterly Hogs and Pigs report Dec. 23. The report is likely to indicate significant cuts in summer and fall farrowings and the resulting pig crops. The big question is whether those reductions match the big 4% to 6% cutbacks indicated by the September report. This week’s slaughter supported recent talk of a big decrease in supplies. We continue thinking the implied decline in first-half 2022 hog supplies will support hog prices at significantly higher levels than implied by futures.
90-day outlook: The September Hogs and Pigs report implied winter hog slaughter rates would average approximately 6% below comparable early 2021 levels. Thus, the seasonal reduction in hog supplies often seen early in the calendar year will prove particularly large, thereby tending to offer vigorous support for the usual price advance into mid-February. That strength may also depend upon the strength exhibited by wholesale beef prices at the same time, since the hog/pork complex has almost surely enjoyed active substitution demand for pork instead of beef, due to the latter’s greatly increased cost at the retail level. Indeed, elevated retail prices and their potential negative impact upon consumer demand for red meat are one of the greatest risks for those anticipating bullish events in 2022.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You should have all soybean meal needs covered in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
Price action: February live cattle futures rose 27.5 cents to $138.075, down 87.5 cents for the week. January feeder cattle rose 80 cents to $164.875, up 75 cents for the week.
5-day outlook: Live cattle futures fell for a second consecutive week as cash market strength waned. Cash prices were heading for a drop of $1 to $2 from last week’s average of $140.44, which is the highest weekly average since June 2017. Meatpackers had bid aggressively since early November but pulled back this week as slumping beef prices led to shrinking margins. Packer margins today fell to an average of $169.15, down from $254.35 a week ago, according to Hedgers.Edge.com. Further cash erosion next week likely would pull live cattle futures lower, while continued strength in corn will weigh on feeders.
30-day outlook: The wholesale beef market’s extended slide shows increasingly costly meat is hurting demand, forcing packers to slash prices to move product. High meat prices are contributing to surging consumer inflation, which in November posted the largest year-over-year increase in nearly 40 years. Choice cutout values early today averaged $265.97, down from last week’s average of $275.14 but up from an eight-month low earlier this week. USDA’s next Cattle on Feed report Dec. 23 will also be key to price direction into early 2022.
90-day outlook: Tight supplies of market-ready cattle and strong exports likely will buoy futures early next year, as illustrated by the April live cattle contract’s close today at $141.875, over $4.00 above nearby futures. The U.S. exported 281.5 million lbs. of beef in October, a record for the month and up 8.9% from last year. Through the first 10 months of this year, the U.S. shipped 2.861 billion lbs. of beef, up 19.7% from last year, driven by a 545% surge in exports to China. USDA estimates U.S. beef exports to increase 17% this year to a record 3.455 billion lbs., but fall 5.4% next year.
What to do: Get current with feed advice. Short-term protective hedges may be needed if this week’s lows are violated.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
