Livestock Analysis | December 23, 2021
Price action: February lean hogs fell 12.5 cents to $83.225, after earlier rising to a four-week intraday high at $83.925. The lead contract gained $2.425 for the week.
5-day outlook: Futures may gain support early next week after USDA’s Hogs and Pigs report showed a larger than expected decline in the U.S. herd. All hogs and pigs as of Dec. 1 totaled 74.2 million head, down 4.0% from the same date in 2020. Analysts expected a drop closer to 2.9%, based on a Reuters survey. Animals kept for breeding, an indicator of expansion, were little changed at 6.18 million head, compared to expectations for a 0.1% increase over year-ago levels.
30-day outlook: Cash fundamentals stabilized and firmed slightly in recent weeks, suggesting the market has established a seasonal low. Today’s CME lean hog index fell 69 cents to $72.33, down from a four-week high yesterday. Hog supplies likely will 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 $10.865 premium to the cash index.
90-day outlook: Demand will be a key price driver for hogs in early 2022. A recent resurgence in the wholesale market indicates prices have dropped enough to generate stepped-up demand. Pork cutout values surged $11.00 early today to $95.67, up from $85.82 at the end of last week and led by gains of over $26.00 in bellies and hams. Also today, USDA reported net weekly U.S. pork sales at 28,800 MT, down 8% from the previous week but up 5% from the prior four-week average.
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 surged $2.25 to $139.625, the contract’s highest closing price since $139.65 on Dec. 6 and a gain of $3.20 for the week. March feeder cattle rose $1.825 to $163.75, up $2.05 for the week.
30-day outlook: Cash trade will be one key to market direction over the month ahead. Futures’ late-week surge followed reports packers yesterday raised cash cattle bids from early-week levels in the northern market, signaling the recent drop in cash prices may be nearing an end. Bids in the Southern Plains were down about $2 from last week and a limited number of cattle have moved. Packers may not bid particularly aggressively the rest of the year, but tight supplies of market-ready animals should keep futures supported. April live cattle settled today at $143.925, nearly $7.00 above nearby futures and an indication traders expect prices to remain elevated early next year.
90-day outlook: Beef demand, both domestic and foreign, will be a key factor in cattle futures’ direction in early 2022. The wholesale beef showed signs of stabilization the past two weeks after a prolonged slump, suggesting lower prices have generated a pick-up in retail demand. Choice cutout values rose $1.21 early today to an average of $263.07, up slightly from the end of last week. Movement by midday totaled 64 loads. Early today, USDA reported net weekly U.S. beef sales at 12,000 MT, down 30% from the previous week and down 23% from the four-week average. But U.S. beef export commitments (exports plus outstanding sales) are still ahead of last year’s pace, totaling 1.077 MMT, up 15% from the same period a year ago.
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.
