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.
Newly re-opened restaurants push pork demand
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.
Cattle tread water
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.
Dairy
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.