Hog futures and Class III milk futures took a price hit during the month of June while nearby live cattle futures held steady, with deferred cattle contracts showing modest gains.
Let’s take a look at current fundamentals and price outlook heading into third quarter.
Dairy
The dairy markets have been in a downtrend recently with both Class III and Class IV futures trading lower. Nearby Class III milk futures enjoyed $20 prices in early May; however, slid down to the low $16 price range by late June. The catalyst for lower trade appears to be two-fold; lower cash cheese trade and higher milk production. Regarding cheese, the block/barrel average dropped another $0.4125 cents in late June to trade within $0.01 of the lowest price all year. The market took another hit when the Milk Production for April (released in June) totaled 19.85 billion pounds, which was up an astounding 4.6% from the same month last year.
Milk production per cow averaged 2,088 pounds, which was up 60 pounds per cow from the May 2020 total. Total milk cows on farms in the United States came in at 9.505 million head. This is with 145,000 head more than the same month last year. Wisconsin and California, the two largest dairy producing states, both had production growth increases over 5% year over year.
One bright note for the dairy complex is how strong dairy exports have been during 2021. U.S. dairy exports in April totaled 248,423 metric tons. This was up 52,113 metric tons from the previous April and broke the historical record for dairy exports in the month. Recent growth from a percentage basis has been led by butter, up 256% versus last year. All production growth across the board was strong with not a single product down year-over-year. The weakest growth came from non-fat powder, but still up 16% year-over-year.
Heading into third quarter, Class III milk futures need some friendly news to reverse this downtrend. Production is extremely high, and that will likely keep prices in check. One good thing to note is that demand from schools will be back in late August as schools will likely be in session across the country, as the COVID-19 situation is resolving.
Lean hogs
Hog futures had a major price correction to the downside during the month of June due to concerns of lost export demand, a slide in the pork cutout value and ample U.S. production. July hog futures peaked in early June when prices rallied to a staggering $123.60. By late June prices slide lower trading down to the $100 price support area.
The U.S. Department of Agriculture’s Hogs and Pigs report released in late June was considered mostly neutral, lending some support to deferred contracts. The report showed all hogs and pig supply on June 1 at 97.8% of last year versus an average trade expectation of 97.7% (96.5% to 99.0% range). Kept for breeding supply came in at 98.5% of last year, which was below trade expectations for 98.8% (98.2% to 100% range). Market supply came in at 97.7% versus expectations for 97.5% (96.3% to 99.1% range). The pig crop for March-May was 96.9% of last year, which was below expectations of 98.1% (97.0% to 99.8% range).
U.S. weekly pork export sales slid slightly during the month of June. However, cumulative sales for 2021 have reached 1.134 million tonnes versus 1.190 million last year. This is the second highest total on record for this time of year. The five-year average is 854,900 tonnes.
Live cattle
Cattle futures held steady for most of the month of June. Front month contracts continue to trade in a sideways pattern. Prices are supported by domestic and export demand; however, supply is plentiful. The Cattle on Feed report came in mostly on expectations. The on feed number came in at 100.2%, just slightly lower than the average estimate of 100.7%. The Placement number was supportive at 93.1%, coming in slightly lower than expectations of 95.4%. The marketing number came in at 123.4%, just slightly lower than the average expectation.
When you look at the breakdown of the report, the market looks to have plenty cattle this early summer with 501,000 head weighing 800 to 899 pounds placed in May. Near term price will depend on boxed beef market during July and August once the Fourth of July holiday demand has been met. Demand normally slows into the July/August timeframe, but will that be the case this year? Demand factors are stronger than normal domestically and internationally, and supply looks to gradually tighten in the months ahead. Trade will also eye US beef export sales, which continue to be on fire. Cumulative sales for 2021 have reached 662,900 tonnes, up from 504,400 last year. This is the strongest pace on record. The five-year average is 480,100.
The live cattle complex is the shining star of the livestock complex with prices looking to hold firm and potentially work higher into third quarter.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
