Written Commentary
CATTLE
While April cattle continue to hold a stiff premium to the cash market, the upside breakout yesterday was an impressive move, and traders see short-term consumer demand indicators as being as good as they get. Seasonal increases in demand are expected in the weeks ahead, and demand is enhanced this year by Covid relief checks and the strong urge for consumers to get out after a year of restrictions. While the CDC director talks of “gloom and doom” over the near term, the agency has also reported that Pfizer and Moderna vaccines are highly effective after first shot in real-world use. The risk of infection fell 90% by two weeks after the second shot in the study of nearly 4000 US healthcare personnel and first responders. The first shot reduced risk of infection by 80% after two weeks. April cattle closed moderately higher on the session, and the buying has pushed the market up to its highest level since February 26.
A smaller than expected slaughter pace last week, plus a strong export pace and smaller imports are all factors to lend support. The strength in the beef market has traders believing that cash cattle will trade higher again this week. The USDA boxed beef cutout closed $1.87 higher yesterday at $239.53. This was up from $230.95 the previous week and was the highest the cutout had been since February 26. Cash live cattle were quiet yesterday; no trades reported as of the afternoon. The 5-area average live steer price last week was 115.59, up from 114.23 the previous week but down from 119.31 a year ago. The estimated dressed cattle weight last week was 830 pounds, down from 834 the previous week and 872 a year ago. US estimated beef production last week was 534.6 million pounds, up from 521.5 million the previous week but down 5.7% from a year ago. The USDA estimated cattle slaughter came in at 119,000 head yesterday. This was up from 116,000 last week and unchanged from a year ago.
LEAN HOGS
The hog market remains in a steep uptrend, but June hogs are holding a premium to the cash market, and the market remains technically overbought. In addition, there is significant divergence in the RSI with the contract highs posted on February 24, March 17, and March 26. Relative strength has been lower on the market’s recent moves to contract highs, suggesting a loss in the upside momentum. The USDA pork cutout, released after the close yesterday, came in at $106.51, up from $106.45 on Friday and $101.90 the previous week. June hogs closed lower on the session yesterday but up sharply from lows earlier in the session when the market filled a good portion of the gap left on Friday. The short-term trend remains up as pork values continue to push higher, and this has lent support. Pork supply is about 2% less than traders had anticipated, and the seasonal decline in production along with strong demand from the reopening of restaurants and food service industry has also lent support.
The CME Lean Hog Index as of March 25th was 95.97 up from 94.59 the previous session and up from 91.71 the previous week. The USDA estimated hog slaughter came in at 492,000 head yesterday. This was up from 481,000 last week but down from 495,000 a year ago. Total slaughter last week was 2.551 million head, up from 2.524 million the previous week but down 8.2% from a year ago. Pork production for the week was down 7.2% from a year ago. China’s national average spot pig price as of March 30 was down 1% from the previous day. Prices are down 2.98% for the week, 8% for the month and 28% year to date. If there was a serious supply issue due to another wave of ASF in China, pig prices would likely be higher, not lower.
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