Livestock Analysis | November 24, 2021
Price action: February lean hog futures rose 97.5 cents to $84.25, the highest closing price since $84.35 on Oct. 7.
5-day outlook: Hog futures bulls gained momentum today as the market ended light pre-holiday trade at a six-week high. Prices are trending strongly higher on the daily bar chart, suggesting more upside in the near term. There are growing ideas the cash hog market has established an early seasonal low. The national direct cash hog price today was up 26 cents and the five-day rolling average cash price was $54.97. The CME Lean Hog index latest quote was up 27 cents to $73.15. The index is more than $2.00 below December lean hog futures. Pork cutout values early today rose 59 cents to $85.51. Movement by midday was strong at 235.69 loads.
30-day outlook: Cash hog prices in recent years have hit yearly lows between Christmas and New Year’s Day. Surprisingly large pork production this year suggests a repeat of that seasonal phenomenon. Recent wholesale pork weakness combined with high wholesale beef prices should prompt improved pork demand in the coming weeks.
90-day outlook: USDA’s September Hogs and Pigs report suggested December-February hog slaughter would run about 6.0% under year-ago levels, which if realized would likely mean a continued recovery in the hog market. Last week’s slaughter, at 2.629 million head, was 3.6% below the comparable year-ago figure.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You should have all corn-for-feed and soybean meal needs covered in the cash market through October.
Price action: Surging cash cattle bids cattle futures. December live cattle rose $2.50 to $137.90, the highest settlement for a nearby contract since April 2017. February live cattle rose $1.45 to $140.875. January feeder cattle climbed $2.55 to $166.975.
5-day outlook: Two major packers reportedly boosted their bids for fed cattle to $138 by late morning today, with some talk of bids having reached $139 early this afternoon. Most feedyard managers were reportedly passing, since it appears market-ready fed cattle supplies aren’t meeting packer needs. Reports of $140 trading filtered in before the futures close. We expect heavy trading to occur as producers start taking packer bids, which may give packers the ability to hold the line next week, especially since they’ll soon gain access to contracted cattle for December. That might open the door to a short-term futures setback, which would seem even more likely if recent choice-beef cutout stability around $279 fails and wholesale prices turn lower.
30-day outlook: If industry observers, including Pro Farmer, are correct in thinking the supply of market-ready fed cattle is falling increasingly short of packer needs, that bodes well for the late-year fed cattle outlook. A short-term setback seems possible next week as packers gain access to fed cattle contracted for December. However, we suspect they’ll still have to pay up for steers and heifers in mid-to-late December. Export demand for beef has remained robust, but recently released October retail data showed most grocery store beef items averaging over 25% above comparable 2020 levels. The likely reduction in consumer buying may limit the upside across the cattle/beef complex.
90-day outlook: The traditional seasonal decline in the supply of fed cattle will almost surely reduce weekly slaughter rates to annual lows in the February-March period, which should lend considerable support to fed cattle prices during the first couple months of the year. Weights should also be falling on a seasonal basis, thereby reducing beef production per head. Packer demand may be surprisingly good in late winter, since Easter (and Lent) arrive quite late next year.
As we saw in the run-up to Thanksgiving, persistently elevated wholesale prices are giving packers a great deal of room to boost cattle bids without sending their margins into the red. For example, recent choice beef quotes around $279 are above former records from 2014-15, whereas fed cattle prices around $140 are far, far below the record high near $173 reached during that same time. This is one reason we remain optimistic over the fed cattle outlook. We suspect elevated feed costs will hamper rallies in feeder cattle prices but sustained fed cattle gains would almost surely pull them higher as well.
What to do: Get current with feed advice. Be prepared to add cattle hedges if the rally stalls.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soybean meal needs covered in the cash market through October.
