Livestock Analysis | June 30, 2023
Price action: August lean hog futures rose 27 1/2 cents to $92.60, nearer the session high and for the week gained $2.925.
5-day outlook: The lean hog futures market absorbed fairly well a mildly bearish USDA Hogs & Pigs Report issued Thursday afternoon. August hogs today closed at a technically bullish weekly high close. Thursday’s USDA data showed the U.S. hog herd rose 0.1% from year-ago as of June 1; traders expected a 0.7% decline. All categories except spring farrowings and summer/fall farrowing intentions came in higher than expected.
Traders next week will focus on cash market fundamentals that have improved recently. The official CME quote for the lean hog index matched the preliminary figure for Wednesday, up 46 cents at $93.42. Thursday’s preliminary quote rose another 50 cents to $93.92. The latest national direct 5-day rolling average cash hog price was quoted today at $91.80. The noon report Friday showed pork cutout value rose $1.75 to $104.65, led by strength in hams. Movement at midday was 147.56 loads.
30-day outlook: Retailers were more aggressive in featuring pork during May, producing a drop in hog supplies. More of the same is likely this summer, especially with still-elevated beef prices. That’s one reason we are optimistic about the hog market’s upside potential in the coming weeks. This week’s strong rebound in the live cattle and feeder cattle futures also bodes well for spillover buying support in the hog futures market during weeks ahead.
90-day outlook: This week’s USDA export sales report showed U.S. pork sales of 26,700 MT for 2023 were down 7 percent from the previous week, but up 3 percent from the prior 4-week average. U.S. pork shipments need to improve in the coming months for the hog/pork markets to see sustained price appreciation. Hog market bulls have been disappointed U.S. pork sales to China have not been better, given China’s hog herd dealing with outbreaks of African swine fever.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soymeal needs covered in the cash market through June, with half of your needs for July and August also covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: Stabilizing cash and wholesale prices, along with a seeming bullish response to today’s corn breakdown, boosted cattle futures Friday. The nearby June contract went off the board at $181.50, up $1.75 at noon, while most-active August jumped $2.675 to $177.175; that’s up $6.40 on the week. August feeder futures rocketed $5.20 higher to $247.575, with the daily high of $247.825 representing a fresh all-time high for nearby feeder futures. The close marked a weekly jump of $13.625.
5-day outlook: Although this week’s cash and wholesale weakness seemed to fulfill bearish expectations for the fed cattle market, those moves didn’t dissuade bulls. Indeed, the August live cattle contract ended the week posting a fresh high close at $177.125. The fact that choice cutout remains quite elevated in a historical context seems to imply the potential to rebound in the near future. And while the Monday-Thursday average for cash cattle came in $2.26 below the comparable week-ago figure, the resulting $180.41 average was still about $3.00 over today’s August live cattle close. Conversely, the nearby futures discount is certainly within historical norms, which seemingly holds the underlying implication of cash cattle firmness through midsummer. Meanwhile, today’s huge corn acreage number and the bearish futures reaction sent feeder futures rocketing higher on the prospect of relatively cheap feed for the months ahead. Nearby August hit a record high and technicals suggest much more of the same.
30-day outlook: The July outlook for fed cattle seems rather promising due to the potential for wholesale price firmness, especially if the complex experiences summer events similar to those of 2021. That is, after spiking to their second highest level all-time, choice beef values later surged even higher as Labor Day loomed that year. Grocers’ inability to force a dramatic reversal of the June beef surge implies sustained consumer beef demand despite likely grocer moves to boost retail costs. The strong futures market finish to the week and month also implies the industry expects the recent cash market decline to come to a quick end. Our research of similar years of June strength also suggests the cash market could firm.
90-day outlook: Today’s huge corn acreage number and the potential signal of a major production surge this year could be long-term bearish for fed cattle, since cheap feed might easily translate into torrid feedlot industry demand for replacement calve and yearlings this fall. February and April 2024 live cattle futures trading over $184.00 also seem likely to encourage feedlot placements. The summer 2023 price outlook could remain conducive to sustained fed cattle strength, but producers will need to avoid the temptation to hold cattle in the lots longer than necessary.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soymeal needs covered in the cash market through June, with half of your needs for July and August also covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
