Livestock Analysis | December 1, 2023
Price action: Expiring December hog futures edged 17.5 cents lower to $68.60 Friday, while most-active February futures led the deferred contracts lower. February hogs ended the week at $70.10, marking a daily drop of $1.375 and a weekly rise of $1.325.
5-day outlook: The hog market remains seasonally weak, with traders anticipating little in the way of strength before next spring. For example, the CME hog index officially slipped 18 cents to $71.35 as of Wednesday, with Thursday’s unofficial quote falling another 77 cents to $70.58. But December futures, which expire on December 14, imply cash losses of about another $1.75 in the interim. February futures around $70.00 indicate little anticipated strength by mid-winter. Next week’s hog slaughter will likely be quite large on a seasonal and cyclical basis, with the week following historically marking the highest kill total of the year. This week’s kill topped its year-ago counterpart by 121,000 head or 4.7%, remaining well above the totals implied by the September USDA Hogs & Pigs report.
30-day outlook: As one would expect the largest hog supply and slaughter rates of the year will probably lead to some of the lowest hog and pork prices of the year as well. The situation is unlikely to be alleviated during the year-end holiday season either, since grocers will have finished buying hams for the holidays at that juncture. In recent years, it’s been quite common for cash hog prices to post their annual lows between Christmas and New Year’s Day. The December 22 USDA Hogs & Pigs report will give the industry an idea of forthcoming hog supplies, although those reports have consistently undercounted hog supplies since last December’s report was published.
90-day outlook: The first six weeks of the year have historically tended to see cash hog and wholesale pork prices rally into mid-to-late February, but such gains have not materialized in some recent years. Indeed, the market fell below its Jan. 1 lows during the first quarter in three of the past five years (2019, 2020 and 2023). We harbor some suspicions that the recent strong consumer demand driven by reduced retail prices will continue supporting the market this winter. That could prove especially true if grocers decided to feature hams aggressively at next year’s early Easter (March 31) celebrations. That would mark a sharp contrast to the grocery industry’s decision to maintain retail ham prices at very high levels for Easter 2023. We believe that was a big reason the hog market dropped to fresh lows last April. Historically, late winter/early spring weakness sets the stage for the spring/summer price advance to annual highs as consumer demand surges seasonally and hog supplies fall to annual lows.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soymeal needs covered in the cash market through December.
Price action: February live cattle futures fell $2.70 to $169.125, near the session low and on the week lost $1.85. January feeder cattle futures dropped $5.525 to $214.425, near the daily low and for the week down $4.90.
5-day outlook: Heavy technical selling pressure was featured in the cattle futures markets today. Today’s closes near the weekly lows suggest more follow-through price weakness early next week. The late-week rebound in the corn futures market added to downside pressure in the feeder futures the past two sessions. Cash cattle market fundamentals are also weakening, which is keeping the bulls squeamish. Cash cattle trade Thursday took place at lower prices. So far this week, cash trade has been mostly $1.00 to $3.00 lower on a live basis and as much as $4.00 lower in the dressed market. Today’s noon report showed wholesale beef cutout values were mixed, with Choice grade falling $1.00 to $298.02, while Select rose $1.16 to $265.91. Movement at midday was decent at 115 loads.
30-day outlook: Underlying cattle market fundamentals still appear stable, overall. Consumer demand for beef remains good despite still-elevated prices at the meat counter. The Choice-Select grades spread, which was $32.11 at midday, remains historically wide at present, suggesting still-tight supplies of market-ready cattle in the feedlots. However, the latest reading for steer dressed weights showed that after stalling around 927 pounds for the prior four weeks, the reading for the week ended Nov. 11 rose to 931 pounds per head--matching the all-time high reached one year ago. Thursday’s reading for the week ended Nov. 18 rose another five pounds to 936 pounds per head. That suggests feedlot marketings are not as current as previously expected. The recent sell-off in cattle futures was due in part to the bearish USDA cattle-on-feed report in October. The next monthly cattle-on-feed report is released on Friday, Dec. 22.
90-day outlook: General marketplace attitudes have up-ticked the past few weeks. The major U.S. stock indexes this week hit multi-month highs due in part to ideas the Federal Reserve has finished its interest-rate-increase cycle. Better investor and consumer confidence bodes well for continued solid consumer demand for beef at the meat counter in the coming months. Cattle prices historically tend to rally in the first quarter as fed cattle supplies often reach their lowest levels of the year in late February or March. Surging grilling season demand also tends to support the market as spring advances.
What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soymeal needs covered in the cash market through December.
