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May 27, 2021
The volatility being seen across commodity markets is also being found within the livestock sector. The whipsaw price action of increased volatility escapes no one, with dramatic daily trading ranges rattling nerves.
The dairy complex was no exception to the recent commodity sell off with prices dropping $2.00 off recent highs. Escaping the recent commodity-wide sell-off has been hog futures, while the cattle complex seems to be stuck in a sideways rut.
Hog futures continue to extend the price rally with nearby futures contracts trading near the $116 price point as cutout prices surge higher. The recent pork cutout value has surged to over $123, a price not seen since October of 2014. Domestic demand is strong. The re-opening of restaurants is supportive. In addition, the nice weather and summer grilling season is supporting demand for pork products, especially pork ribs.
As of last week, cumulative export sales for pork totaled 986,500 tons, only slightly behind last year’s record exports of 1.1 million tons for this time of year. For now, Chinese imports have been strong, but there is always the watchful tone that their demand may fall.
Recent information suggests that China’s wholesale pork prices are down nearly 40% since mid-January, which suggests that their production continues to recover from the decimating herd loss of African Swine Fever. While the outlook is friendly, this is one market that needs to continuously watch for a top in the weeks ahead. There is a USDA Hogs and Pigs report out on June 24th which may provide further insight as to domestic supplies.
The cattle complex continues to trade in a modest sideways fashion. Nearby June futures continue to trade at a slight discount to cash, with cash prices overall staying firm near the $119 to $120 level. Domestic demand continues to shine as restaurants re-open and summer grilling is just getting started. Interesting to note is the fact that boxed beef values are trading near $329, their highest value since June of 2020. Packers continue to reap most of the benefit of higher values, however.
Looking at global demand, U.S. exports continue to shine thanks to demand, fair prices, and the fact that Argentina has stopped their beef exports for 30 days.
One item the market is monitoring, is if there are more cattle coming to market in the coming weeks as feed prices continue to be lofty overall, and pasture conditions in the west are of major concern. The May 24, 2020 crop progress report showed that 39% of U.S. pasture conditions were rated poor to very poor. This is alarming as over half of the nation’s beef crop is raised in those drought areas. Should drought continue, it may force beef producers to market their cattle earlier than normal, which could put ample supplies on the market for the short term.
The next Cattle on Feed report is not until June 25. Until then, prices may continue to march in this sideways pattern.
Class III milk futures seem to have found short term support near the $18 mark. Prices will likely struggle to see a significant price increase in the short term as the recent milk production report pegged production UP a whopping 3.3% from the month prior.
Trade had been thinking that the higher feed costs may have impacted feed rations, which may have led to lower production. Not the case. This higher feed cost concern continues to be a market watcher for latter summer months.
Higher grain prices and the fact that nationwide hay stocks are down 11% from a year ago are reason to watch the dairy market closely. Domestic demand for cheese remains strong overall. The market is also curious of the implications from the announcement of the Biden administration which has suggested that Canada was improperly allocating USMCA tariff-rate import quotas on 14 dairy products.
The dairy complex will closely monitor domestic and export demand in the coming weeks. We feel the livestock complex will continue to be affected not only by demand, but by feed availability and feed costs in the coming months.
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
The opinions of this writer are not necessarily those of Farm Progress/Informa.
senior market adviser, Total Farm Marketing by Stewart Peterson
Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.
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