Livestock Analysis | September 17, 2021
Price action: October lean hog futures rose 25 cents to $85.725 per hundredweight, up 4% for the week. December lean hogs rose 60 cents to $75.05.
5-day outlook: Optimism over the winter-spring outlook supported deferred hog futures today. Traders will keep an eye upon cash and wholesale markets next week, especially after the CME Lean Hog Index diverged from its typical pattern of beginning a seasonal rally in early September. The preliminary index quote yesterday fell $1.17 to $92.28 despite fresh signs of wholesale pork strength. Bears clearly think the red meat/livestock markets are vulnerable to reduced demand stemming from the spread of the Delta Covid-19 variant. Look for futures traders to even-up their positions late next week as they anticipate the Sept. 24 USDA quarterly Hogs and Pigs report. The industry is generally anticipating further trimming of the U.S. herd.
30-day outlook: The outlook through mid-October depends heavily upon cash and wholesale market strength. Cash values extended a month-long slide during the first half of September, apparently reflecting ongoing setbacks from the record second-half high in choice beef values and ideas that Covid and falling beef costs will undercut consumer demand for pork as well. If the pork and/or beef markets can stabilize in the weeks just ahead, deeply discounted nearby futures may be poised to rally toward the CME index. Slaughter rates will likely increase seasonally into early October, but USDA’s July data implied autumn 2021 hog supplies would decline about 3% annually.
90-day outlook: Seasonal patterns suggest cash hog prices will reach an intermediate-term high in mid-October, then decline through the end of the year. That’s a big reason December futures ended the week over $10.00 under October. There are reasons to think the fourth-quarter drop will prove more modest, starting with the projected year-to-year reduction in hog supplies. Having ham and total pork stocks at comparatively low levels also suggests potential underlying support. The direction taken by wholesale beef prices could exert considerable influence over hog and pork values as well.
What to do: Make sure you’re current on 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 75% for September and 25% for the fourth quarter. You should be hand-to-mouth on corn for feed needs.
Price action: October live cattle fell 80 cents to $122.80 per hundredweight, down 0.5% from $123.425 last Friday for the third consecutive weekly decline. December live cattle fell $1.05 to $127.525. October feeder cattle fell 72.5 cents to $156.375, down 0.9% from $157.725 at the end of last week.
5-day outlook: Cattle futures posted a modest rebound from a drop to three-month lows earlier in the week but remain burdened by an extended slide in wholesale beef prices. Choice cutout values fell $1.92 early today to an average of $316.08, the 15th consecutive daily decline and the lowest price since Aug. 11, USDA data showed. Movement by midday totaled 86 loads. The boxed beef market likely must bottom to generate sustained buying interest in futures.
Feedlot operators have been contracting much of this year, and USDA’s next monthly Cattle on Feed report Sept. 24 will indicate whether that trend continued in August. In its previous report, USDA estimated cattle placed in feedlots during July at 1.739 million head, down 8.1% from the same month in 2020. As of Aug. 1, an estimated 11.074 million head of cattle were on feed, down 1.9% from a year earlier.
30-day outlook: Recent strength in U.S. beef exports, if sustained, may help futures stabilize in the month ahead. USDA reported beef export sales for the week ended Sept. 9 totaling 15,300 metric tons (MT) up 23% from the previous week and up 24% from the four-week average. However, weekly shipments were down 11% from both week-ago and the four-week average. China continues to show up as a buyer and destination for U.S. beef. U.S. beef exports so far this year are running about 15% above last year’s levels, with China a prominent buyer.
90-day outlook: Shrinking feedlot inventories and continuing expansion of the U.S. economy may boost futures over the longer-term, or at least keep a floor under the market. February live cattle settled today at $131.55, nearly $9 above nearby futures, an indicator of the market’s bullish inclinations for early 2022. Risks include a resurgence in Covid cases and a continuation of lackluster U.S. job growth seen in the August employment report. Cattle slaughter this week was up nearly 2.0% over the same week a year ago and so far in 2021 is up 3.7% over 2020, a signal of expanding beef supplies.
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 75% for September and 25% for the fourth quarter. You should be hand-to-mouth on corn for feed needs.
