Livestock Analysis | June 4, 2021
Price action: Hog futures finished 12 1/2 cents to $1.60 higher today, scoring new highs in most contracts, with the July contract far outpacing gains in other months. For the week, June hogs rallied $2.25 to $119.50, July futures rose $1.25 to $120.60 and the August contract firmed $1.35 to $117.575.
5-day outlook: Bulls continue to have the strong upper hand. Given premiums in summer-month contracts, however, some profit-taking and corrective selling is possible if not likely at points next week. As long as the cash index and pork cutout value continue to strengthen, the downside will be limited to corrective selling and there should be willing buyers under the market.
30-day outlook: Seasonal tops in the market typically come sometime in early to midsummer. We have no reason to believe this year will be any different, though that will be dictated by the cash and product markets and when they peak. Given elevated price levels, you must be prepared to increase third-quarter hedges and add fourth-quarter coverage on signs of a seasonal top.
90-day outlook: Chinese demand is the wildcard. If you believe the Chinese data signaling its hog herd is nearly back to pre-African swine fever levels, its pork imports should slow (potentially dramatically) the second half of the year. For now, China continues to show up as a prominent buyer and destination for U.S. pork in the weekly export sales data. But as of May 27, outstanding pork sales to China of 40,398 MT were down nearly 65% from last year and more than 76% from two years ago at this time.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures. Be prepared to add to third quarter hog hedges and establish fourth-quarter coverage.
Hedgers: You should have 25% of third-quarter production hedged in July hog futures at $95.375.
Feed needs: You should have all soybean meal needs covered in the cash market through July, along with 50% for August and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
Cattle
Price action: August live cattle fell $0.45 to $118.075, near the session low today and down from $118.60 at the end of last week, but well-off Tuesday’s lows. August feeder cattle fell $3.025 to $149.925 and down from $151.35 at the end of last week.
5-day outlook: Today’s weakness raises questions over how much upside cattle prices may have over the near-term and whether summer grilling demand has been filled. Price action this week took some wind out of bulls’ sails, though the long-term uptrend is still intact. Cash cattle traded around steady prices this week. Cattle slaughter numbers are down from last week, reflecting the Memorial Day holiday and the cyberattack that forced a temporary shuttered JBS plants. Key next week will be whether slaughter rates return to normal and what impact that has on the cash market.
30-day outlook: Market-ready cattle supplies will remain heavy and may slow recoveries in futures and cash prices, though strong wholesale beef markets and robust exports may continue to limit the downside. Wholesale beef prices are very strong but that market has been trading independent of futures and cash cattle.
90-day outlook: Export demand, particularly from Asian countries, will be key to cattle futures’ long-term direction. Net beef export sales of 12,600 MT for the week ended May 27 were down 55% from the previous week and down 38% from the average for the previous four weeks. Beef exports for the year to date totaled 370,900 MT, up 13% from the same period a year earlier, according to USDA data. Sales to China so far this year totaled 51,300 MT, compared to just 3,900 MT last year.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures.
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 July, along with 50% for August and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
