Livestock

Cattle: 

The cattle market ended the week with a lot of exciting factors. Choice beef rallied $19 this week and returned back to spring highs. Cash cattle jumped this week. The South is only -$2 from its spring high. June fed cattle pushed, confidently, above recent resistance. The way these bullish accomplishments were made though, a packer-led supply squeeze right before Memorial Day, is not the way we would like to see.

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We had discussed the idea that last week, and this week, would be packer led setbacks in processing. Our running total this week was seen at 623,000 head. That would have been -2.7% from last year. Last week was also too low, -3.5%. But USDA's kill estimate for the week was much lower than our estimate, 598,000 head. There is no Saturday slaughter planned. This brings the shortfall to -6.6% vs. last year. Instead of doing any work on the prior processing backlog we are actually adding to it!

The processing backlog has not disappeared. Finishing weights now have five weeks in a row at +3% from last year.

The impact from this lowered beef production, ahead of Memorial Day, is higher wholesale beef pricing. The gain this week has been just plain extraordinary, +18.63 just in 4 ½ days this week! Along with a few light gains over the prior week this market has now come back +20.63 over 11 days. That has almost completely removed the prior 30 day slide from spring highs, -20.83.

We are not sure what type of influence avian flu news may hold on this market. This week's news flow, ahead of Memorial Day, would be considered positive. The CDC reports its testing of ground beef, cooked properly after exposure to avian flu, was safe. Rare ground beef, 120 degrees, still had viable cells.

Wrapping this up on a Friday we have cash cattle bids in the South at $186. We assume there will be trades there, +$2 from last week. The spring high was $188. The recent low was $182. Now over three weeks we are near that spring high. For Nebraska we have bids up to $187 live and confirmed dressed trades at $300. Those are nearing their spring highs of $190/$302.

As you would expect with a short term spring rally, summer futures have also reigned in how low they think prices will fall. With a normal applied futures are implying cash will fall to only $184 in June then $179/$180 late summer lows. This is better than the traditional 10% drop from spring highs. That would imply cash down to $169.

Allendale released estimates for next Friday's Cattle on Feed report this week. A tale of two cities is still in place. The general story, declining supplies at the end of the year, remains in place. We estimate April placements, inflows into feedlots that will finish out October - December, at -6.5% from last year. Five of the past six months saw lower placements. Our April placement would be the smallest in four years. We estimate marketings of finished cattle +8.6% over last year. Now let's be clear, this did not clean up the processing backlog. This was exaggerated on the high end due to the April 2024 calendar vs. 2023. Don't forget, the prior month's March placement was exaggerated on the low end due to the same thing.

Our May 1 On Feed count is deceptive at -0.4% from last year. Remember, this is a tale of two cities. In the 11.565 million head total, a full 56% of those are market ready cattle that have been feeding for over 120 days. Our 6.450 million head estimate is the largest for this time since the data series started in 1996! On the other hand, those feeding for under 120 days, 5.116 million, would be the smallest back end numbers since 1996!

USDA's monthly supply/demand report has not been a friend for the beef side in recent months. Their 2024 beef production estimates, released starting last year, have been slowly walked up. Another 140 million lbs. was added to the 2024 view in last week's monthly update. Now at 26.595 billion lbs., they are only -1.4% from last year. They see Q3 production unchanged from last year. Q4 restarts the beef supply decline story, -3.3% from last year. Their initial 2025 estimate was posted at 25.120 billion. That is -5.5% from last year.

This week's much better than expected trade was able to push the June live cattle futures chart to prices last seen on 3/26. It broke, and closed above prior resistance from the 4/26 high at 179.65. The positive side is there is a lot of space for this market to explore on the upside, 180 - 183. Yes, new highs for this minor uptrend were made today. Yes, the close was near the day's highs. Those are positive signs. But we are not going to negate the bear side. This week itself, due to gap higher opens, we added three more open gaps on the downside. They are now all over. These five total gaps are at the 5/16 close at 179.02, the 5/15 close of 178.25, the 5/13 close of 175.57, the 5/1 close of 173.85 and the 4/12 close of 171.47.

August feeders were able to fill its need for upside. The intraday gap to the 4/29 close was filled at 259.62. Bulls now have a new goal, breaking avove the 4/29 high of 261.80. There are bear points to note on the chart. As with the fed cattle chart downside gaps are still waiting. They are at the 5/13 close at 251.35 and the 4/12 close of 245.50…Rich Nelson

* Allendale is putting together its 2024 in-person outlook/marketing meetings. If you would like a meeting in your local area contact Lynsey at 815-578-6170.

Hogs:

Though cash hogs have restarted their seasonal uptrend, summer futures spent the week pealing back implied premiums. June pushed to a low this week not seen since 2/14.

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Cash hogs have officially restarted the seasonal uptrend. The last minor high for the seasonal rally was on 4/23 with the Lean Hog Index at 91.64. We now have three days in a row with an LHI over that price. This week's four days of cash hog trade were +1.25.

While cash hogs are lightly rallying summer futures are racing lower in an attempt to reprice themselves to a lower peak ahead for cash hogs. Today's Lean Hog Index covers cash hog trading through Thursday. Today's 96.75 last trade for June futures suggests the market believes cash hogs with only rally +4.46 from here over 20 days. The market is implying cash hog gains of only +0.22 per day.

June futures, at 98.40, would only hold a premium over 2023's pricing of +11%. Expired May and April futures were each +20% and +27% to last year. This would appear as though June is underpriced. This would share our view from fundamental analysis. But comparisons against first half 2023 are a bit tough to do. This year held a real hit to cash hog prices due to Prop 12. If we compared current June 2024 futures against June of 2022 we are running -11%. Remember, we have a larger supply than 2022. That would appear inline as the May and April contracts were each -9% from their 2022 counterparts.

The laggard in the cash rally is not with cash hogs. It is with cash pork. Including today's morning report of +0.22 this week's pork rally is +0.72. That puts the pork cutout to 100.49. We still have not yet taken out the spring spring of 103.60.

Updated retail level pricing this week from the monthly Consumer Price Index also means updated retail pork pricing data. April retail pork prices were reported at $4.814 / lb. This is +1.8% from last year at this time. Last year is likely not a good year for comparison. This price would be -1.5% from two years ago. Considering our pork output will be +3% from two years ago, USDA says +4%, that's not bad. The main question for the live animal side of pricing is not about the retail pricing issue. It is really about how much of that retail share that we are recovering from last year.

Weekly pork export sales were disappointing again. 21,105 tonnes were reported. This was -34% from last year. Pork export sales have been on a poor pace in recent weeks. Back in March year to date bookings were +6% year/year. They have now slipped to -4% year/year. That is much below USDA’s whole-year goal of +7%.

USDA's pork production estimates remain bearish. Their most recent supply/demand report showed 2024 2024 pork production at 28.064 billion lbs. This would be +2.8% vs. last year.

While cash hogs and cash pork are still marching to their seasonal peak, somewhere May to July, futures typically have this dialed in already. The seasonal peak for June futures is on February 21. August futures typically peak on March 10. October and December futures typically peak April 8 and 11. The current high for those two contracts is right on schedule, April 8 and 9.

We've discussed our view of economic value for June, $102. This has been a barometer for us for under valued pricing and over valued pricing. June futures are now back under value. Hedges are on for 50% of all hogs to be marketed for 2024. To be clear, we are not suggesting any lifting of these hedges.

Thursday's Outside Day closing higher was a positive sign. At the least we expected short term stability. Instead, new lows for this short term downtrend were posted. A new lowest close was posted. The day's end was near the low. These are all negative signs. There is no sign yet of any attempt at a large rebound to fill the open gaps at higher pricing, the 4/25 close at 105.00 and the 4/24 close at 107.45. We will also point out today's gap lower trade left now a third gap at higher prices, the 5/16 close of 98.37.

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