Livestock prices looking up according to specialist Cattle prices look favorable in the long-term future while the hog market offers several pricing opportunities in the intermediate run, said Matt Diersen, Extension risk and business management specialist at South Dakota State University.
Diersen noted that June and July lean hog futures are in the high $60 to low $70 range, which may be the most favorable pricing opportunity as of late March. Pork bellies or bacon are in high demand.
Diersen saw no great opportunities for pricing in the cattle market in the short or medium run. However, the lack of beef expansion anytime soon bodes well for long run opportunities. Diersen said that instead of demand-driven prices, supply will be the driving factor. Cattle prices will be higher than $72 next year, projected Diersen.
"You're talking about good cattle prices a year from now or six months to a year from now," said Diersen.
Diersen explained several factors have impacted these markets and will continue to do so in the future.
Last year, the Sioux Falls hog price followed the national price fairly well except for a couple of times during the summer. This tells producers they can feel fairly confident in hedging using lean hog futures. "But there is still some basis risk involved and that could be as much as $5 larger than what would be considered a normal basis," said Diersen.
Diersen also said that the breeding herd in the United States has decreased, improving prices lately.
Many structural changes have taken place in the swine industry, commented Diersen. Over time, hogs have concentrated among fewer states. A shift from mainly east of the Mississippi to directly west of the Mississippi as well as some growth in numbers of hogs in the Southwest U.S has occurred. This shift is significant, because it changes where the demand for feed occurs, Diersen said. Based on the number of hogs in South Dakota, look for them to utilize about 25 million bushels of corn this year.
Cattle are still less concentrated than hogs, but in the last 10 years some consolidation has occurred in the central U.S. Most cattle continue to be fed in the South-central U.S., however, South Dakota has a fair number of small feedlots. Last year, 270,000 head of cattle were marketed through small feedlots (less than 1,000 head) in South Dakota in addition to the 360,000 head that were marketed through larger feedlots.
Diersen added that these cattle would utilize about 45 million bushels of corn. The remaining cattle in the state would consume an additional 20 to 30 million bushels.
Diersen noted that the price spread between the stocker-weight and feeder-weight cattle is fairly wide right now and often tends to be wide in late spring. Last year, the spread was $15 in April and May, but narrowed to $5 to $10 towards the end of the year. When looking at feeder cattle futures to get an estimate of the value of stockers this fall, $5 to $10 is probably a more reasonable price slide.