July 8, 2021
Grain futures aren’t the only commodities to deal with the wild price action as of late. The livestock complex is also experiencing dramatic price swings. Hog futures and Class III milk futures took a price hit during the month of June while nearby live cattle futures held steady, with deferred cattle contracts showing modest gains. Now that the calendar has flipped to July, let’s take a look at current fundamentals and price outlook heading into third quarter.
The dairy markets have been in a downtrend recently with both Class III and Class IV futures trading lower. Nearby Class III milk futures enjoyed $20 prices in early May, however slid down to the low $16 price range by late June. The catalyst for lower trade appears to be two-fold: lower cash cheese trade during the month of June and higher milk production.
To start off July, Class III milk futures continue to trade sideways to lower. Earlier news this week that cheese block were bid up 6.75c and barrels up 1c on 18 loads traded would normally have sent milk futures higher. However, outside market pressure from a higher U.S. Dollar and sharply lower grain kept a lid on any rally potential.
Large milk production
The Milk Production for April (released in June) totaled 19.85 billion pounds, which was up an astounding 4.6% from the same month last year. Milk production per cow averaged 2,088 pounds, which was up 60 pounds per cow from the May 2020 total. Total milk cows on farms in the U.S. came in at 9.505 million head. This is 145,000 head more than the same month last year. Wisconsin and California, the two largest dairy producing states, both had production growth increases over 5% year over year. The next milk production report is slated for July 22.
One bright note for the dairy complex is how strong dairy exports have been during 2021. United States dairy exports in April totaled 248,423 metric tons. This was up 52,113 metric tons from the previous April and broke the historical record for dairy exports in the month. Recent growth from a percentage basis has been led by butter, up 256% versus last year. All production growth across the board was strong with not a single product down year-over-year. The weakest growth came from non-fat powder, but still up 16% year-over-year.
Technically, the milk futures market remains heavily oversold and could be due for a bounce higher. Heading into third quarter, class III milk futures need some friendly news to reverse this downtrend. Production is extremely high, and that will likely keep prices in check. One good thing to note is that demand from schools will be back in late August as schools will likely be in session across the country, as the Covid-19 situation is resolving.
Hog futures had a major price correction to the downside during the month of June due to concerns of lost export demand, a slide in the pork cutout value, and ample U.S. production. July hog futures peaked in early June when prices rallied to a staggering $123.60. By late June prices slide lower trading down to the $100.00 price support area. Prices have held mostly stead to start the month of July as prices are at a cross roads. Futures prices are trading at a discount to current cash prices, which should lend support. Yet, trade continue to monitor the export situation, knowing how ample U.S. hog production currently is.
U.S. hog production
The USDA Hogs and Pigs report released in late June was considered mostly neutral, lending some support to deferred contracts. The report showed all hogs and pig supply on June 1 at 97.8% of last year versus an average trade expectation of 97.7% (96.5%-99.0% range). Kept for breeding supply came in at 98.5% of last year, which was below trade expectations for 98.8% (98.2%-100% range). Market supply came in at 97.7% versus expectations for 97.5% (96.3%-99.1% range). Pig crop for March-May was 96.9% of last year, which was below expectations of 98.1% (97.0%-99.8% range).
U.S. weekly pork export sales slid slightly during the month of June. However, cumulative sales for 2021 have reached 1.134 million tonnes versus 1.190 million last year. This is the second highest total on record for this time of year. The five-year average is 854,900. Trade is eager to monitor the demand pace for exports in the weeks and months ahead. The market has always been on edge that eventually we would lose market share to China once their herd was rebuilt after dealing with African Swine Fever. Should export demand suddenly exceed expectations, that would prompt a price recovery in futures values.
Cattle futures held steady for most of the month of June. Front month contracts continue to trade in a sideways pattern as the month of July begins. Prices are supported by domestic and export demand, however short term supply is plentiful.
The most recent Cattle on Feed report came in mostly on expectations. The on feed number came in at 100.2%, just slightly lower than the average estimate of 100.7%. The Placement number was supportive at 93.1%, coming in slightly lower than expectations of 95.4%. The marketing number came in at 123.4%, just slightly lower than the average expectation.
When you look at the breakdown of the report, the market looks to have plenty cattle this early summer with 501,000 head weighing 800 to 899 placed in May. This will tighten supply late in summer and into fall. Near term price will depend on boxed beef market during July and August once the Fourth of July holiday demand has been met. Demand normally slows into the July/August timeframe, but will that be the case this year? Cut-out values have actually been trending slightly lower recently, however are still up from year ago values.
Demand factors are stronger than normal domestically and internationally, and supply looks to gradually tighten in the months ahead. Trade will also eye U.S. beef export sales, which continue to be on fire! Cumulative sales for 2021 have reached 662,900 tonnes, up from 504,400 last year. This is the strongest pace on record. The five-year average is 480,100.
The live cattle complex is the shining star of the livestock complex with prices looking to hold firm and potentially work higher into third quarter.
Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and [email protected]
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation
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