Livestock Analysis -- July 20, 2012

July 20, 2012 09:41 AM



Price action: Lean hog futures were unable to hold earlier gains and finished the day mixed. For the week, August hog futures led gains as traders narrowed the discount the contract holds to the cash market.

5-day outlook: Extreme heat forecast for the Midwest next week is likely to slow hog movement. As a result, the cash hog market may strengthen despite negative packer margins. If packers pay steady to firmer prices for cash hogs it would open the door to followthrough buying in futures, especially in the August contract.

30-day outlook: BLT season is almost here, which should support pork belly prices. But strength across all cuts is needed to support a strong rise in the overall cutout value. Pork values have been highly volatile so far this year, but seasonals argue prices should be turning around soon.

90-day outlook: Seasonally, hog and pork supplies will start to build by late summer/early fall. But surging feed prices are likely to curb any expansion plans producers had, which would push more gilts into the slaughter mix and could increase pork supplies more than expected.

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

Feed needs: Risk is covered in the cash market for now.



Price action: Live and feeder cattle futures faced pressure to close out the week. Live cattle ended above last week's close, while feeder futures posted weekly losses on strength in the corn market. August live cattle futures ended the week 75 cents above last week's close, while August feeders ended $2.90 lower for the week.

5-day outlook: This afternoon's Cattle Inventory Report gets a friendly read, as the All Cattle & Calves estimate came in 0.6% below the average trade guess. But the positive read mainly comes from the replacement categories. Beef replacement animals came in even with year-ago and milk replacement came in at 98% of year-ago -- both below expectations.

30-day outlook: Traders are keeping a close watch on beef demand, as exports have not impressed so far this year and high temps raise concern about demand for higher-quality cuts. The sharp drop in Choice boxed beef values since early July is weighing on the cash market. The forecast for above-normal temps the remainder of the grilling season doesn't bode well for an uptick in domestic demand.

90-day outlook: With over half of U.S. pastures in "poor" to "very poor" shape according to USDA, the slaughter mix will likely continue to feature a higher-than-usual percent of cows as producers are forced into more liquidation. While that raises beef production near-term, further cuts into the cow factory point to even tighter beef production down the road.

Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now.

Feed needs: Risk is covered in the cash market for now.


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