Thanks to strong demand both domestically and abroad, cattle and hog futures continue to find price support. Exports for first quarter are off to a great start, and domestic demand continues to improve as states and restaurants slowly begin to re-open after the one year mark of COVID-19. And grilling season is just around the corner.
After reaching a price high of 126.70 in mid-February, the April 2021 live cattle futures contract retreated to a recent low of 118.02. On Wednesday’s trade, the April contract found solid support at the 100-day moving average on daily charts, and posted an outside bullish reversal. This technical signal can often times be viewed as a friendly technical signal. Does it mean that prices will immediately rally higher from here? Not necessarily, but it likely points to very firm footing at the 118.00 price point.
Gravity defying up trend
Meanwhile deferred cattle contracts continue in a gravity defying up trend on charts. The October 2021 contract closed at a new high on Wednesday at $125.27 as demand is expected to grow on tightening cattle supplies.
Boxed beef values and cash markets improved at midweek this week. Boxed beef values came in at $228.80, up $1.87 with $115 price bids for cash markets. This is much improved from cash trade which has been stuck near $113 for close to 2 weeks.
With the government stimulus checks hitting American checking accounts this week and next, many feel that money will be quickly spent on groceries, grilling out, spring break travel, and restaurant meals as COVID-19 vaccine distribution ramps up. Spring fever is in the air, and the desire to return to a pre-Covid world is strong.
Watch tomorrow’s report
The next Cattle on Feed Report will be released this Friday afternoon. Looking at pre-report estimates, the On Feed number is expected to come in at 101.4% from one year ago. The Placement number is expected to come in 2.4% lower than a year ago at 97.6%. The marktings number is expected to come in near 98.1%.
Lean hog futures are pushing higher again this week as all contracts through December made new highs. Amazingly enough, the June 2021, July 2021, and August 2021 futures contracts are all trading above $100.00! The strong values are due to higher cutout values, and expectations for lower production in the second quarter are all offering support.
ASF impacts
Hog futures have also found support on continued notions of strong export demand of U.S pork to China. While China has taken many precautions to eliminate African Swine Fever over the past two years and has taken new initiatives to re-build the herd with modern facilities, the virus continues to slowly spread throughout China. Rabobank recently stated that the sow herd in China may have been reduced by 3% to 5% due to the virus.
While the industry is starting to throw out projections about how much further production will be lost to this new virus surge, just remember, the supply of pork in China is still growing, just not as fast as what was thought a few months ago.
Here in the U.S. farmer chat websites are beginning to share news that PRRS (Porcine Reproductive and Respiratory Syndrome) virus has been found in some U.S. hog herds. This is a developing story, and needs to be monitored in the weeks ahead.
The next big USDA report for hogs is on March 25. This is a quarterly report, and will provide fresh insight about current hog inventory, and future production.
Both cattle and hog futures remain in uptrends and have no sign of a top. The markets are approaching overbought levels on charts, so some caution is warranted. Also be mindful of U.S. and Chinese talks happening this week in Alaska. Should conversations turn sour, exports could potentially be at risk.