Livestock Analysis | September 10, 2021

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Hogs

Price action: October lean hog futures plunged $3.025 to $82.45 per hundredweight, a drop of 8% for the week and the lowest closing price since mid-April.

5-day outlook: Historical patterns suggest cash hog and wholesale pork values will turn seasonally higher next week. The recent breakdown in both markets certainly slowed late this week. For example, the preliminary quote for yesterday’s CME lean hog slipped just 23 points to $97.73, which means the October future ended the week over $15 below the cash equivalent price with just over a month of trading left until expiration. Pork carcass cutout values were up 64 cents, to $109.34, at midday today after swinging widely earlier in the week. A reversal may be in store next week, especially if the hog index turns higher. 

30-day outlook: Cash hog and pork prices tend to rise seasonally from early September into mid-October. Although hog slaughter routinely rises substantially during September, USDA forecasting a 3% annual reduction in those supplies during fall could prove supportive. But the big question will likely be the strength of consumer demand. Beef cutout values at record highs for this time of year seem likely to prove supportive of the pork demand outlook, since substitution demand could prove quite robust. However, traders in livestock markets, as indicated by the big across-the-board losses posted by futures lately, are clearly worried that the ongoing resurgence in COVID-19 will hammer consumer demand this fall. We are much more confident of sustained strength.

90-day outlook: After hog and pork prices reach an intermediate high in mid-October, they generally decline through the balance of the year. The drop seems likely to prove less substantial in late 2021 due to the predicted year-to-year reduction in hog supplies, as well as the significantly reduced stockpiles of pork that had accumulated through early summer. Ham stocks are well below levels of recent years, which seems to bode well for the late-year outlook, since grocers and consumers routinely buy hams aggressively for Thanksgiving and Christmas dinners. Again, sustained consumer demand strength for beef and pork will likely be key to the late-2021 outlook.

What to do: Get current with feed advice. Be prepared to add fourth quarter hog hedges on a price recovery.

Hedgers: You currently have all risk in the cash market.

Feed needs: Cash coverage for meal stands at 100% for July, 100% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 100% for August and 50% for September.

 

Cattle

Price action: October live cattle futures fell 32.5 cents to $123.425 per hundredweight, down 1.1% for the week. The lead contract earlier fell as low as $123.025, matching a two-month low posted Sept. 8. October feeder cattle futures fell $1.525 to $157.725, down 2.9% for the week and the lowest settlement since June 11.

5-day outlook: Cattle futures showed signs of stabilizing late this week following a steep, two-week tumble, but may remain under pressure from an extended slide in the wholesale beef market. Choice cutout values early today fell $3.13 to an average of $329.45 per hundredweight, down 2.1% from the end of last week and the lowest since Aug. 13, USDA data showed. Movement by midday was 74 loads. Cash trade appeared to soften late this week, compared to last week’s live steer average of $125.61. Cattle futures’ technical posture turned decidedly more bearish this week, though signs the market is oversold may limit downside. October live cattle settled just above the 200-day moving average around $123.20.

30-day outlook: USDA’s monthly Cattle on Feed report Sept. 24 will indicate whether feedlot operators’ recent contraction continued in August. In its previous report, USDA estimated cattle placed in feedlots for fattening in July at 1.739 million head, down 8.1% from the same month in 2020. Total cattle on feed as of Aug. 1 was an estimated 11.074 million head, down 1.9% from a year earlier.

90-day outlook: The U.S. and global economy, along with export demand, remain key long-term drivers for cattle futures. USDA today reported net beef sales of 12,400 metric tons (MT) for the week ending Sept. 2, down 20% from the previous week and down 2% from the prior four-week average. But USDA, in its latest Supply and Demand report, hiked its forecast for 2021 U.S. beef exports by 0.9%, to 3.41 billion pounds (1.55 million MT). A weak U.S. jobs report for August and surging COVID cases raise at least a couple red flags for the economy and demand for pricier foods like steaks and chops. But other indicators, such as crude oil prices and the S&P 500 index, don’t suggest significant alarm over the economic outlook.

What to do: Get current with feed advice. Futures are signaling a short-term top is in place. We may add hedges for fed cattle soon.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Cash coverage for meal stands at 100% for July, 100% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 100% for August and 50% for September.

 

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