Livestock Analysis | December 17, 2021
Price action: Hog futures posted a mixed performance, with nearby February futures climbing 45 cents to $80.80, up 22.5 cents on the week. Deferred contracts had modest losses.
5-day outlook: The holiday season will disrupt livestock slaughter over the next two weeks, which is one reason, along with peak seasonal supplies, that this week’s slaughter total at 2.645 million head was the second largest for the second half of the year. However, unlike most years, it came nowhere near the huge total of 2.829 million posted during the first full week of the year. This disparity partially reflects the sheer size of year-ago supplies, as well as the 6.0% annual reduction in hog numbers expected this winter. The total for the past two weeks averaged 6.0% under year-ago.
We expect stable prices through the holiday season, although history suggests prices will have a downward bias. The supply outlook will be better defined after the USDA next Hogs and Pigs report Dec. 23. Any divergence from expectations for winter-spring hog supplies 4.0%-6.0% under year-ago levels could spur a sharp market reaction when trading resumes Dec. 27. The next CME lean hog index reading is down 5 cents to $72.36, despite wholesale strength seen through midweek. Pork cutouts had fallen $1.00 to $89.95 late this morning.
30-day outlook: Hog supplies should decline both seasonally and cyclically in early 2022, which suggests a strong seasonal price advance into midwinter. February futures ended the week at almost an $8.00 premium to the cash index. The flow of hogs to market through January could lend the market considerable upside if it indeed matches the forecast 6.0% annual reduction. But much also depends upon wholesale demand for cuts such as pork loins and bacon, as well as the size of the traditional late-year decline in ham prices and that market’s behavior in the new year. This week’s renewed strength in wholesale beef prices could bode well for substitution demand for pork as well.
90-day outlook: The hog and markets often seem to lose direction between mid-February and early April, although that period has generally proved to be a weak one for the complex. The lateness of Easter next year suggests the industry will be slow to pursue hams for Easter dinner entrees, which suggests a tinge of underlying weakness through much of winter. Ultimately, the size of the fall pig crop to be reported on Dec. 23 will greatly affect the spring outlook, which is when those pigs will be coming to market. Spring and summer futures are trading far below comparable 2021 levels in apparent anticipation of much weaker demand. We are skeptical of such ideas and much more optimistic based on expectations for a substantial reductions in hog and pork supplies.
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 fell 62.5 cents to $136.425, down 1.2% on the week for the third consecutive weekly decline. January feeder cattle fell $2.325 to $160.25, down 2.8% on the week and the lowest closing price since Nov. 17.
5-day outlook: Live cattle futures may extend this week’s decline to one-month lows on expectations cash prices will continue to erode into next year. Live steers in five top U.S. feedlot areas averaged $137.17 so far this week, USDA reported yesterday, the second weekly drop since the average posted a 4 1/2-year high at $140.44 in early December. Packers have holiday-shortened schedules the next two weeks and likely won’t be bidding aggressively before Christmas. USDA’s next Cattle on Feed report Dec. 23 will offer an update on how feedlot operators are responding to historically high animal prices. In last month’s report, USDA said feedlot placements during October rose 2.4% from the same month a year earlier, higher than trade expectations.
30-day outlook: Demand will be one key to market direction in early 2022. Wholesale beef prices rebounded late this week from a slide to eight-month lows, suggesting prices may have dropped far enough to spur retailer buying. Early today, Choice cutout values rose 48 cents to $263.45 while Select rose 44 cents to $248.58. Movement by midday totaled 57 loads. Choice values on Dec. 15 fell to $260.26, the lowest since early April. If traders sense a bottom in wholesale beef has formed, that may stir renewed buying in futures.
90-day outlook: Cattle futures probably will remain elevated during the early part of next year amid tight supplies of market-ready cattle and strong exports. April live cattle settled today at $140.60, $5.85 above nearby futures. U.S. beef export commitments (exports plus outstanding sales) for 2021-22 so far totaled 1.06 MMT as of Dec. 9, up 14% from the same period in 2021-22. U.S. beef exports are expected to increase 17% this year to a record 3.455 billion lbs., then decline 5.4% next year, USDA estimated.
What to do: Short-term protective hedges for fed cattle producers may be needed if recent 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.
