Livestock Analysis | October 29, 2021
Price action: December lean hog futures closed the day Friday up $0.875 at $76.075 to hit a two-week high and close at a technically bullish weekly high close. For the week, December hogs gained $2.75.
5-day outlook: The solid late-week recovery in lean hog futures prices gives the bulls hope the market put in a near-term bottom this week. The daily chart for December lean hogs does suggest a bullish double-bottom reversal pattern could be forming. Key early next week will be for the bulls to produce some good follow-through buying strength.
There are growing ideas wholesale pork values have put in a seasonal bottom. Pork cutout at noon today rose another $3.14 at $94.57, up from nearly eight-month lows seen earlier in the week. Picnics and loins led the gainers. Movement was good at midday, at 286.3 loads. Cash hogs on a national direct basis were down $1.43 Friday, with the five-day rolling average at $62.52. The CME lean hog index latest reading is down 97 cents at $80.70, the lowest level since the same price on Feb. 25.
30-day outlook: The outlook for smaller U.S. pork supplies may also help to put in a bottom in the cash and futures markets, and support upside price action for both in the coming weeks. Hog slaughter recently has averaged 2% to 3% under year-ago levels. Rising beef prices also suggest increased substitution demand for pork.
90-day outlook: Better Chinese demand for U.S. pork will be key for continued recoveries in the cash and futures markets into the end of the year. Recent weekly USDA U.S. pork export sales numbers to China have been uninspiring. Year to date, all U.S. pork exports are down 5.4% from the same period a year ago.
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 fell $1.05 to $129.275, 95 cents from last Friday’s close. November feeder futures dropped $1.075 to $156.575, down 42.5 cents for the week.
5-day outlook: Industry will focus on the wholesale beef market next week, with traders being particularly concerned with the recent advance in choice beef cutout from the $280 area to $286.01 at noon Friday. Sustained beef gains will probably translate into a continuation of the recent rally in cash cattle values. Meanwhile, feeder traders will likely be taking their cue from shifts in the corn market, since further increases in the implied cost of feed would almost surely reduce feedlot demand for replacement yearlings.
30-day outlook: Ongoing shifts in wholesale beef prices will likely remain a major focus of cattle traders, since that will play a sizeable role in packer willingness to continue boosting prices paid for fed cattle. Slaughter rates, particularly of grain-fed cattle, historically tend to diminish at this time of year, but kills have proven relatively large in December of recent years. Traders will also be monitoring the dressed weight of steers slaughtered this fall, since those have been edging higher, which suggests cattlemen are not marketing their animals as aggressively as they might. This increases the chances of creating a worrisome backlog of fed cattle; prices seldom perform well in such over-supplied situations.
90-day outlook: Shifts in beef and cash cattle values will continue exerting considerable influence over cattle futures in the weeks ahead. Of particular interest will be how cash prices fulfill the moderately bullish forecasts built into winter-spring futures. For example, December futures ended this week at $129.275 which is approximately $3.00 over this week’s five-area direct cash average. That relationship seems to fall in line with historical norms, with February and April futures at $134.225 and $137.225, respectively, clearly illustrating expectations for seasonal strength in early 2022. A significant decline in retail beef prices may be required to stimulate consumer beef demand and power the projected gains in the cattle market. The feedlot industry must also avoid building an excessive backlog of market-ready animals in their lots.
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.
