Livestock Analysis | May 27, 2021

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Hogs

Price action: Lean hog futures ended mixed with the June through August contracts 22 1/2 to 45 cents higher, while the October and December contracts finished 30 and 32 1/2 cents lower, respectively.

Fundamental analysis: Summer-month hog futures were supported by continued strength in the cash and product markets. The national direct cash hog price firmed $3.86 this morning, while the pork cutout value was $1.60 higher at midday. Longer-term, hogs remain underpinned by strong pork demand and the recent sharp drop in corn and meal prices.  

Export demand was also price-supportive. USDA reported net sales of 45,900 metric tons of pork for the week ended May 20, up 56% from the prior four-week average. Pork exports of 47,800 MT were up 38% from the previous week and 11% from the prior 4-week average. China was the buyer of 9,649 MT of U.S. pork and took shipment of 13,500 MT during the week. Additionally, the unofficial U.S. summer grilling season kicks off this weekend and restaurant demand is strong as the economy rebuilds.

Technical analysis: Bulls retain a near-term technical advantage and daily charts reflect a still-intact longer-term uptrend that may continue. July hogs have support around this week’s low of $114.90 and resistance at the contract high of $117.975.

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 cattle inched 10 cents higher to close at $119.425 while October live cattle futures rose 55 cents to $124.175. August feeder cattle futures tumbled $2.20 to $152.85.

Fundamental analysis: Cattle futures rebounded from midsession losses to closed slightly higher. The midday wholesale beef trade showed stronger prices, with Choice up 75 cents and Select gaining 17 cents. Sales were moderately active and USDA call demand good for light offerings. Beef demand the past year has proven stronger than expected and bearish traders are now reconsidering ideas that a normal seasonal peak will lead to a sharp drop in wholesale prices later this summer. Supplies will be rising so some decline is expected, but it may not be as large and that may lend support to the cash markets which continue to look undervalued relative to the beef market.

Direct cash cattle trade activity is quiet following the week’s light to moderate business.  Southern live deals were marked at $119 to $120, steady to $1 higher than last week’s weighted averages.  Northern dressed deals were at mostly $191, generally steady with last week’s weighted average basis in Nebraska. Today’s special Fed Cattle Exchange Auction had an offering of 10,371 head, all of which went unsold. 

Weekly beef export sales rose 19% to 27,900 MT from a week earlier, and up 45% from the prior four-week average. China was the top buyer in the week ended May 20. Total Chinese commitments this year are 96,300 MT, up from 10,300 MT a year ago. Overall beef commitments are up 153,000 MT from last year as stronger sales to Japan and South Korea both up from a year earlier. 

Technical analysis: August live cattle held above yesterday’s lows and were able to recover into the close. However, futures did not close above the 40-day moving average at $119.55. A high-range weekly close tomorrow would be encouraging. A close above last week’s close at $120.925 would be bullish. Daily momentum is down but trying to turn higher. Feeders retreated for a second session after touching a six-week high yesterday. Prices held above the 100-day moving average at $152.90 but are still heading for a lower weekly close without a rally Friday above $153.70.

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.

 

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