Livestock Analysis | November 5, 2021
Price action: December lean hog futures fell $1.325 to $76.55, but still rose 0.6% on the week for the second consecutive weekly gain.
5-day outlook: Futures’ strengthened technical posture combined with beliefs the market has established a near-term low may carry over into early trading next week. Continued improvement in the wholesale pork market may also lend support. Pork cutout values fell $1.36 today to $96.33, down from $96.52 at the end of last week but up from an eight-month low Nov. 1. Futures will need to see further signs of improving demand to sustain buying interest.
30-day outlook: Other cash benchmarks remained soft this week, with the latest CME Lean Hog Index at $78.32, the lowest level since late February. National direct carcasses rose 8 cents to $59.90, down from $61.70 a week ago. But animal numbers and slaughter totals are down from last year’s levels and likely will stay constrained in 2022, which should eventually put a bottom under cash markets. Meatpackers this week slaughtered an estimated 2.611 million head, up from 2.551 million the previous week but down from 2.698 million during same period in 2020. Year-to-date, slaughter is running 2.0% under 2020 levels.
90-day outlook: As December lean hogs near expiration, focus will shift to February and other contracts, which are trading at premiums starting above $2.00 – April hogs settled at $84.20 today, for example. Exports perked up recently, combined with domestic demand, and could help lift futures. USDA this week reported net U.S. pork sales at 45,700 metric tons for the week ended Oct. 28, topping the week prior result by 55% and the average for the previous four weeks by 72%. Whether that buying pace will be sustained is an open question, but strong sales figure suggests wholesale pork prices have fallen far enough to spur overseas buying interest. USDA’s next quarterly Hogs and Pigs report is Dec. 23. Weekly slaughter totals tend to hit an annual peak in mid-December, then decline into the following summer, giving the market an upward bias in the new year.
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: December live cattle futures rose $1.175 to $131.80, up 2.0% for the week and the highest settlement since $132.20 on Sept. 2. January feeder cattle rose $1.425 to $159.60, up 2.2% on the week.
5-day outlook: Continued cash market strength vaulted live cattle futures to the highest close in over two months, with reports packers had paid as much as $130 per hundredweight in late-week trading contributing to today’s gain. The recent resurgence in wholesale prices seemingly reflects improved export demand for U.S. beef, which in turn has prompted accelerated buying from beef packers. Grocers may also be buying more aggressively with the first weekend of December, a prime week for beef features, being separated significantly from Thanksgiving on November 25. Next week, the industry will be keeping a close eye upon any shifts in the trend in beef prices, and for signs of continued demand strength from packers. Traders will also watch USDA’s weekly export sales for a gauge of international demand. Shifting corn prices might cause divergences between fed and feeder cattle values.
30-day outlook: The industry’s focus will likely remain upon demand strength as indicated by daily beef cutout reports and weekly export sales data. Sustained gains in cutout values could easily translate into commensurate gains in cash and futures prices for fed cattle. The tendency for cattle slaughter to test and/or set annual highs late in recent years might exert some downward influence over prices, but such gains haven’t seemed to weigh heavily upon cattle and beef values. That likely reflects the fact that a comparatively large portion of autumn cattle kills is comprised of cull cows and not feedlot cattle. USDA’s monthly Cattle on Feed (Nov. 19) and Cold Storage (Nov. 22) reports will offer indications on current and future supplies.
90-day outlook: The cattle market has historically tended to turn higher in December, due in part to diminishing availability of fed cattle. Weekly kill totals typically reach annual lows in February and/or March. Demand for steaks and grilling cuts also tends to improve as spring approaches. Demand is likely to remain key to the price outlook, since the feedlot situation suggests few variations from traditional seasonal supply patterns in the near future. Feedlot marketings are not especially current, as indicated by elevated steer weights, so the industry must guard against a backlog of market-ready cattle. Having retail beef prices decline from greatly elevated levels would also improve the demand and price outlooks for winter and spring. Rising fed cattle values should translate into rising yearling prices as well, but the high cost of corn may prove to be an obstacle to substantial feeder gains.
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.
