GENERAL COMMENTS:
Lower U.S. hog inventories in 2021 plus Friday's report of 38,700 metric tons (mt) of pork export sales for last week were enough to send hog futures to new high ground Friday, even to new contract highs for April and June contracts. Meanwhile, live cattle futures did well to finish the day with modest losses, staying mostly neutral in a week that had a lot of bearish headwinds for cattle. March feeder cattle did not hold up as well, closing down $1.65 Friday and ending down $3.07 on the week.
From Friday to Friday livestock futures scored the following changes: February live cattle up $0.05, April live cattle down $0.02; January feeder cattle down $2.42, March feeder cattle down $3.07; February lean hogs up $5.30, April lean hogs up $6.50.
LIVE CATTLE:
For anyone looking at the news this week, there were plenty of reasons for cattle to trade lower. U.S. stocks fell lower with ongoing concerns about higher interest rates in 2022, along with some disappointing earnings reports. U.S. cases of coronavirus remain far above levels seen previous to this winter and are limiting cattle slaughter. Crops in southern Brazil and Argentina finally received some rain this week, but corn prices jumped higher anyway with traders concerned about Russian troops on Ukraine's border. In spite of all the bearish news, February live cattle closed down 40 cents at $137.92 Friday and was up a nickel on the week. It is also impressive that February cattle prices continue to hold above support at $136, the site of their 100-day average. The April and June contracts were down $1.07 each on Friday but remain above their recent levels of support.
The best we can say on cattle prices' behalf is that it appears the market was encouraged by this week's slight increases in the daily slaughter pace and remains optimistic about returning to higher levels soon. Unless there is some unexpected surprise late Friday, this week's cash trade took place at mostly $137 in the South and $218 in the North. Northern trades were roughly steady with a week ago, but also included trades for early February, when slaughter may be even higher. Friday morning's report from USDA showing 12,800 mt of beef export sales last week was not especially impressive, but it was interesting China was the top buyer, taking 3,900 mt. USDA estimated Friday's slaughter at 114,000, up from 113,000 a week ago. Saturday's slaughter was estimated at 61,000, up from 50,000 last week. For the week, cattle slaughter was estimated at 636,000, up from 618,000 last week.
Boxed beef prices have been gradually increasing since mid-December and posted another higher week. Choice boxed beef finished at $292.41, up $8.10 from a week ago. Selects ended at $282.33, up $8.36 from a week ago.
After Friday's close, USDA said 12.037 million head of cattle were on feed as of Jan. 1, 2022, more than expected and up 1% from a year ago. It was also the second highest Jan. 1 inventory on record. December placements were up 6% from a year ago, more than expected and the most since the series began in 1996. Marketings were only slightly higher than a year ago and the second highest for December on record. While the report is bearish for Monday's prices, it is worth noting the placement weights fell in categories that were generally lower than a year ago, so deferred contracts may absorb more of the bearish pressure.
MONDAY'S CASH CATTLE CALL: $1.00 to $2.00 lower. An early bearish response to Friday's on-feed report could moderate by the end of the session.
FEEDER CATTLE:
It is fair to say the bearish news mentioned above did have more of a price impact on feeder cattle this week. This week's 20-cent gain in March corn and ongoing concerns that cattle are gaining weight, while the slaughter pace has slowed, are two of this week's stronger bearish concerns. March feeder cattle closed down $1.65 at $163.30 but did manage to hold above its 100-day average at $162.70. The January feeder contract expires Thursday, Jan. 27 and closed down $0.90 at $160.27, below the CME Feeder Cattle Index, posted at $161.20 on Wednesday. The more forward looking May feeder contract was down 80 cents on the week, but continues to project a more bullish future, ending at $171.92.
LEAN HOGS:
After a nearly six-month decline in cash hog prices that took the Swine Formula Base to a low of $68.83 at Thanksgiving, hog futures prices have turned sharply higher and are having some success in pulling cash prices higher as well. February hogs closed up $1.27 Friday, finishing the week up $5.30 at a new three-month high of $86.20. April and June contracts were even more impressive posting weekly gains of $6.50 and $4.87 as both closed at new contract highs of $94.95 in April and $104.77 in June.
USDA's Daily Direct Hog Report for Friday afternoon showed the Swine Formula base at $77.71 with a head count of 164,156, up $1.65 on the week. The negotiated weighted average ended at $62.69 with a head count of just 3,716. Helping to add to the bullish scenario for hogs, USDA said early Friday that 38,700 mt of pork were sold for export last week with Japan taking over half of the total. USDA also showed bullish influence from the retail sector. Pork cutouts were up $1.05 Friday at $93.29 on 242.78 loads. Butts and hams showed the largest gains of just over $8.00 each. For the week, pork cutouts were up $4.22, chopping higher since Thanksgiving. Similar to cattle, hog slaughter has also slowed lately, but was estimated at 445,000 for Friday, up from 422,000 a week ago. Saturday's slaughter is estimated at 218,000, up from 149,000 last week. For the entire week, USDA estimated 2.44 million head of hogs slaughtered, up from 2.366 million a week earlier. New U.S. cases of coronavirus are down from their recent peak in early January and may be subsiding, but it is too early to be confident.
MONDAY'S CASH HOG CALL: Steady. After Friday's upward surge in hog futures, the tone is clearly bullish, but a quieter Monday to start the week would not be a surprise.
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