Livestock Analysis | September 3, 2021
Price action: October lean hog futures fell 27.5 cents to $89.575 per hundredweight, down 1.3% from $90.725 at the end of last week. December futures fell 22.5 cents to $82.10.
5-day outlook: Slumping wholesale pork prices pressured futures, but a sharp rebound in cutout values today suggests the market is stabilizing and demand remains firm. Pork carcass cutout values early today surged $6.78 to $116.05, propelled by a jump of over $37 in bellies. Earlier this week, cutout values sank to the lowest levels since late March.
30-day outlook: The CME Lean Hog index fell sharply this week, with the latest reading down $1.35 to $101.32, the lowest since early April. The index’ downturn is one of several indicators of expectations for seasonal weakness linked to expanding hog supplies coming to market in the weeks ahead. Still, the index holds a nearly $12 premium to October futures. USDA’s next Quarterly Hogs and Pigs report Sept. 24 will offer insight into the pace and direction of recent herd contraction.
90-day outlook: The U.S. economy and the recent upswing in Covid-19 cases bears watching as we head into cold-weather months, with demand for higher-priced foods, such as beef and pork, in question after U.S. job growth slowed significantly during August. The Labor Department today reported non-farm payrolls rose just 235,000 in August, far below expectations for a gain of 720,000. U.S. pork exports this year are lagging last year’s pace by over 4%. Deferred futures indicate hog prices will fall into the low $80s by the end of the year, before rebounding late next winter.
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.
Price action: October live cattle futures fell $1.25 to $124.80, the lowest closing price in nearly seven weeks. October feeder cattle futures fell $2.575 to $162.475 and scored a six-week low. For the week, October feeders fell $5.95.
5-day outlook: On Aug. 24 October live cattle futures hit a contract high of $132.85 (and a more-than-1.5-year high basis nearby futures). Since then the market has declined every trading session but one and has lost nearly $8.00 per hundredweight. Today’s technically bearish weekly low closes in both fat and feeder futures are one more clue the cattle futures markets have put in tops—and possibly major market tops.
The slumping wholesale beef market has played a big role in the downdraft in cattle futures. Choice cutout values at noon Friday fell another 23 cents to $337.69, the lowest in over two weeks. Cash cattle prices have traded around steady this week, with prices late this week ranging from $123 to $126.
This week’s big drop in corn futures prices did not help the feeder cattle futures market at all.
30-day outlook: USDA this week reported U.S. beef net sales of 15,600 MT reported for 2021 were up 49 percent from the previous week and up 24 percent from the prior 4-week average. If U.S. beef exports remain strong in the coming weeks, the price downside from present levels would be limited in both the cash cattle and cattle futures markets.
90-day outlook: U.S. jobs growth slowed in August, as the Labor Department reported non-farm payrolls rose 235,000--well below market expectations for a rise of 720,000 and suggesting rising Covid cases are starting to impact the U.S. economy. Covid’s Delta variant surge is becoming alarming in some areas of the U.S. and is raising serious concerns about more business and public lockdowns this fall and winter. However, respected former head of the Food and Drug Administration Dr. Scott Gottlieb said this week he believes the latest virus surge will peak in about a month. Whether the virus gets under control in the coming weeks, or whether the situation worsens later this fall and into winter, will weigh heavily on the U.S. cattle and fresh beef markets, from a consumer demand perspective.
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.
