Livestock Analysis | December 31, 2021
Price action: Hog futures finished moderately to sharply lower for the last trading day of the week, month and year. February hogs dropped $1.225 to $81.475 today and were down $1.75 for the week. Front-month futures closed out the year $11.20 higher than the end of 2020 on the continuation chart.
5-day outlook: Packers will be working with a full slaughter schedule for the first time in a couple of weeks. With slaughter numbers continuing to run well under year-ago levels, that could increase post-holiday demand for hogs and support the cash market. If the cash market doesn’t show strength early next week, an extension of today’s corrective pullback would be likely.
30-day outlook: Traders have a larger-than-normal price advance built into February lean hog futures. Over the past five years, the cash index has firmed roughly $7 from the end of the year to mid-February, when the February contract expires. February hogs finished this year around $11 above the cash index, signaling traders have a generally optimistic attitude toward cash trade early in the new year.
90-day outlook: USDA’s Hogs & Pigs Report indicated slaughter will run about 6% under year-ago levels through mid-winter. From there through spring, slaughter should be about 2.5% to 3.5% under year-ago. Producers indicated they intend to increase farrowings by a modest 0.5% this winter. But farrowings next spring are expected to drop 0.8% from last year. With the breeding herd down 0.1%, the winter and spring pig crops won’t likely be any larger than year-ago.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on price pullbacks to extend coverage.
Price action: February live cattle futures fell 27.5 cents to $139.70, down from $139.62 at the end of last week. December live cattle expired 15 cents lower at $138.90. March feeder cattle rose 95 cents to $169.95, the contract’s highest closing price since Sept. 1.
5-day outlook: Live cattle futures ended the week on a soft note after profit-taking pressure chewed away at a midweek jump to four-week highs. A resurgent cash market briefly lifted futures earlier this week, but the weak close suggests traders may be skeptical over how aggressive packers may go after cattle early in the new year. Live steers as of yesterday averaged $139.88, up from last week’s average of $135.64 and heading for the first weekly gain after three weeks of declines. Feeder futures closed at a four-month high and may assert some upside leadership next week.
30-day outlook: Cash trade and consumer demand will be two related keys to market direction early in 2022. Wholesale beef made a modest increase during the last two weeks of December, suggesting lower prices were stimulating demand from retailers, perhaps for January promotions. Choice cutout values ended the week at an average of $265.26, up from $262.94 at the end of last week, while Select averaged $258.23, up from $252.95. USDA will release its next Cattle on Feed Report on Jan. 21.
90-day outlook: Beef demand will be one of a few key price drivers during the first few months of 2022. While retail beef prices remain near record levels, an easing in broader inflationary pressures, as many economists expect, may compel consumers to snap up more beef, especially as grilling season nears. Looking further into the new year, tight animal supplies likely will keep cattle prices elevated, though higher-than-expected feedlot placements in November indicates numbers may eventually expand. April live cattle ended the year at $144.825, over $5.00 above the nearby contract.
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 are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on price pullbacks to extend coverage.
