Livestock Analysis | June 24, 2022
Price action: July lean hog futures rose $2.375 to $110.925. August hogs gained $3.10 to $106.775 and fell $1.10 for the week.
5-day outlook: Friday’s solid gains in the hog futures market came amid better cash market fundamentals, with the CME lean hog index near a 10-month high. The next index quote is expected to be $110.90, up 21 cents. Pork cutout values early today rose a solid $3.21 to $112.98, led by gains in butts and bellies. Movement was decent at midday, at 172 loads. July hogs finished today just above the latest cash index quote, while August hogs ended at a discount of almost $4.00.
30-day outlook: USDA today reported weekly U.S. pork sales of 25,400 MT, down 10% from the four-week average. U.S. pork export sales will have to show some improvement in the coming weeks if the hog futures market bulls want to see prices in a sustained uptrend, especially with U.S. stockpiles on the rise. USDA’s Cold Storage report showed U.S. pork stocks at 543.1 million lbs. as of May 31, up 9.7 million lbs. from April and up 17% from a year ago. Daily slaughter levels over the next three weeks likely will drop near the lowest levels of the year. The bigger August futures’ discount to cash is likely due to the seasonal increase in hog supplies expected after mid-July.
90-day outlook: Hog futures were burdened this week by a broad commodity sell-off amid rising fears of a U.S. recession and the market may be vulnerable to more spillover price pressure if commodities continue to slump. However, a recession could actually support meat demand, as consumers may be inclined to eat at home more.
What to do: Be prepared to extend feed coverage on a pullback to the recent lows.
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.
Price action: August live cattle fell 50 cents to $133.375, down $3.20 for the week. August feeder cattle tumbled $2.15 to $172.70, a weekly loss of 25 cents.
5-day outlook: Cash cattle trading broke loose in the northern Plains Thursday, with the Monday-Thursday average for Nebraska and Iowa coming in at $147.40 and $148.05, respectively. This represents a stunning difference from southern quotes around $138.00. Unfortunately for bullish traders and producers, futures are focusing on lower prices in southern markets, where deliveries would occur if the expiring contract were to move toward parity with the northern markets. Still, the much tighter northern market, as well as tight market-ready supplies (as indicated by steer weights now below year-ago levels) should limit short-term weakness in cash and futures values. We tend to expect flat prices in the cash markets and in June futures as the contract goes into expiration next Thursday.
USDA’s Cattle on Feed report today looks supportive for futures, with May feedlot placements at 1.869 million head, down 2.1% from last year and well-under the average analyst estimate. The more predictable marketings total came in 2.4% over the comparable year-ago figure, whereas a 3% rise was expected. That may diminish the likely positive futures reaction, although having the June 1 cattle on feed population figure rise just 1.0% annually, when a 1.4% increase was expected, also looks supportive.
30-day outlook: Traders are likely to key off USDA’s livestock slaughter report, which will reflect last week’s average steer weights, which in turn will indicate how severely cattle suffered from recent Plains heat. A huge drop would imply the heat greatly stressed cattle, which they would likely take time to recover from, thereby implying the market-ready supply of fed cattle will remain tight. A more modest drop or a steady-to-larger weight reading would point in the opposite direction. Ultimately, with most grocer buying for Independence Day features now completed, the cattle/beef complex is likely facing weak demand. Given the weakness of spring red meat demand indicated by Thursday’s Cold Storage report, consumer demand could prove to be a big issue. We think current marketings will limit the downside but sustained early-summer cash losses are very likely coming.
90-day outlook: Cash cattle prices seem likely to remain seasonally weak through early August, but improved grocer buying as they prepare for Labor Day features may give the wholesale and cash markets a moderate boost in early-to-mid-August. Fed cattle supplies usually decline in late summer and fall, which should also provide support as autumn starts and the school year again gets underway. Look for feedlot placements to remain strong, especially if the sizeable premiums built into October live cattle futures and beyond are sustained or increase. Feedlot marketings seem likely to remain current, but producers will begin experiencing the temptation to slow sales if those deferred premiums are maintained through summer. This could lead to a disappointing fall/winter market, especially if grocers keep retail beef prices at greatly elevated levels and continue stifling consumer beef demand.
What to do: Be prepared to extend feed coverage on a pullback to the recent lows.
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.
