Livestock Analysis | July 23, 2021
Price action: August lean hogs rose 70 cents to $107.35, the contract’s highest closing prince since $111.70 on June 16. October hogs rose 90 cents to $92.625, also a one-month high.
5-day outlook: Hog futures may extend this week’s gains as technical patterns strengthen and as improved demand pushes pork prices higher. Carcass cutout values jumped another $4.72 early today to $127.03, according to USDA’s midday report, the highest since June 14. Ham and belly prices led gains. Also, August lean hog futures remain at a discount to the CME lean hog index, which dropped slightly to $112.25 for the two days ended July 21.
30-day outlook: Tight supplies combined with firmer retail demand may help keep hog futures elevated for much of the next month. In USDA’s monthly Cold Storage report yesterday, nationwide pork stockpiles as of the end of June were down 20.3 million lbs. from May, smaller the usual drawdown of about 27.6 million lbs. for the month. But stocks of 442.15 million lbs., are 3.9% below year-ago levels. This week’s estimated slaughter, at 2.33 million head, is up 2.1% from last week but down nearly 10% from the same week year-ago. Year-to-date, slaughter is running 0.6% below 2020 levels.
90-day outlook: Hog supplies are expected to increase into early autumn, signaling lower prices already reflected in deferred futures. December lean hogs, for example, ended this week at $85.575, near $22 under the August contract. Additionally, demand for the various pork grilling cuts is expected to wane after Labor Day. USDA’s June Hogs & Pigs report suggested late-summer hog slaughter will fall about 3% short of last year’s levels, so it’s unlikely prices will drop sharply. But strength or weakness of U.S. consumer and foreign buyer pork demand will be a big factor in coming months. U.S. pork exports so far this year were running about 2.5% below last year’s levels.
What to do: Get current with feed advice. Be prepared to add hog hedges when the rebound in October futures stalls.
Hedgers: You currently have all risk in the cash market.
Feed needs: Cash coverage for meal stands at 100% for July, 100% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 100% for August and 50% for September.
Price action: August cattle futures rose 70 cents to $121.50 per hundredweight, the highest closing price since July 13 and up from $120.175 at the end of last week. August feeder cattle rose $1.875 to $160.075, the highest closing price since $160.625 on July 6.
5-day outlook: Whether cattle futures can follow through on gains this week will depend in large part on cash markets. Wholesale beef prices appear to have stabilized after a nearly uninterrupted slump since early June. Choice cutout values rose another 42 cents this morning to $266.56, according to a USDA report, but cutouts are still near 3 1/2-month lows and down 22% from an early-June peak at $340.55.
Lower than expected numbers in USDA’s latest monthly Cattle on Feed report today may provide fodder for market bulls. USDA estimated 11.29 million head on feed as of July 1, down 1.3% from the same date a year earlier and slightly lower than the average analyst estimate. Cattle placed in feedlots for fattening in June totaled 1.67 million head, USDA estimated, down 7.1% from the same month in 2020. Placement were expected to have declined closer to 4.1%.
30-day outlook: Tighter supplies portended by USDA’s Cattle of Feed report may help keep a floor under cattle futures. Retail demand and the boxed beef market will be key influencers for cattle prices over the coming month. If cash prices can hold above $120 or so, futures may be poised for another run to the upside. Also worth watching: USDA’s next Crop Production Report Aug. 12. Bullish or bearish surprises in terms of the projected corn harvest may affect direction of feeder cattle.
90-day outlook: A seasonal demand upturn, if it materializes, combined with lower fed cattle supplies, could provide cattle futures a lift into the fall months. Futures are already telling up to expected stronger markets toward the end of this year, as December live cattle ended the week at nearly $132, almost $10 higher than nearby August. Export markets are also worth watching. Accumulated U.S. beef exports so far this year are running 17% ahead of last year’s levels over the same period.
What to do: Get current with feed advice. Be prepared to add hedges on a price recovery.
Hedgers: Carry all risk in the cash market for now.
Feed needs: Cash coverage for meal stands at 100% for July, 100% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 100% for August and 50% for September.
