Livestock Analysis | September 22, 2023
Price action: Hog futures suffered another sizeable drop Friday, with the midrange close at $81.525 reflecting daily and weekly losses of $1.425 and $1.60, respectively.
5-day outlook: Hog futures proved unable to rebound from Thursday’s sector-wide commodity selloff, with cash and wholesale slippage providing little encouragement to market bulls. That is, although the CME confirmed Thursday’s preliminary quote for Wednesday at a for-the-move high of $87.17 (up 50 cents from Tuesday), today’s preliminary reading for Thursday set back 9 cents to $87.08. Meanwhile, pork cutout continued its recent decline, adding another 29-cent loss to Thursday’s 47-cent drop, reaching $98.46 at midsession today. Still, these offer little evidence of a short-term top, suggesting the sometime seasonal advance through September and possibly mid-October is still quite possible. This is the crux of next week’s outlook, whether improved seasonal demand will more than offset the ongoing fall surge in hog and pork supplies. This week’s 2.537 million-head kill offered bulls a bit more hope, since it came up 18,000 head (0.7%) below the comparable year-ago figure. Look for futures to stall around midweek as the industry evens positions in anticipation of Thursday afternoon’s (9/28) release of the USDA’s quarterly Hogs & Pigs report.
30-day outlook: This week’s year-to-year reduction in the slaughter total marked just the 3rd time in the past 15 weeks to record an annual decrease. Given a similar pattern of mostly year-to-year gains during the first quarter, it seems likely the Hogs & Pigs report will imply increased supplies through the end of the year as well. Given the poor hog price performance seen during the first five months of 2023, one can certainly argue producers curbed the number of sows farrowing during spring, but one could make just as valid arguments for hog supplies seen during spring and summer. Thus, we are inclined to expect increase hog supplies until reductions show up in the weekly kill totals. It seems as if the ongoing seasonal advance will prove relatively modest later this month and in early October if it lasts that long. Conversely, while we see no reason to doubt renewed seasonal weakness beginning in mid-October at the latest, we are cautiously optimistic in thinking hog prices won’t fall all that sharply from that point.
90-day outlook: Next Monday will also be marked by the release of the USDA’s monthly Cold Storage report, with the resulting beef and pork storage totals reflecting late-summer consumer demand for red meat. The indicated ham stocks figure will also reflect the marketing chain’s preparation for the year-end holiday season. The July 31 total proved comparatively low, which may bode well for the market as the industry has to work on building ham supplies for the holidays. Again, a deviation from the traditional seasonal cash market decline in the fourth quarter seems unlikely, but may also prove more modest than the losses seen in late 2021 and 2022.
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 should have all corn-for-feed and soymeal needs covered in the cash market through September.
Price action: Cattle and feeder futures rebounded sharply from Thursday’s commodity sector sell-off. Nearby October live cattle jumped $2.10 to an all-time high close at $187.075. That marked a weekly gain of 15 cents from last Friday’s previous record. October feeder futures surged $1.375 to close at $259.15. That represented a weekly loss of $5.325.
5-day outlook: The cash have shown signs of sustained strength through the first four days of the week, with the five-area average for Monday-Thursday reaching $184.54, up 28 cents from last week. Today’s futures surge, especially the $2.10 jump posted by October live cattle, will almost surely boost today’s cash quotes and amplify the weekly rise. And given the fact that beef packers won’t gain access to October contracted cattle until the week after next, it seems likely they’ll have to pay up for fed cattle again next week. Today’s strong rebound in choice beef cutout, up $2.24 to $304.17, also suggests packers will have increased incentives to keep actively buying fed cattle.
Today’s USDA Cattle on Feed report may hold slightly negative implications for next Monday’s opening, since August placements modestly exceeded expectations and marketings fell below estimates. The September 1 large-lot Cattle on Feed population was stated at 11.095 million head, essentially matching the pre-report average around 11.025 million. August feedlot placements at 2.003 million (down 5.1%) topped the average guess around 1.98 million, whereas last month’s marketings at 1.884 million fell short of the mean estimate of 1.898 million. Traders seem likely to forget about the report by noon Monday.
30-day outlook: The cattle and beef supply outlook seems likely to remain tight, since the Cattle on Feed report held no real surprises. Seasonal factors suggest continued slippage in weekly slaughter totals will continue through Thanksgiving. Cattle weights and beef production do tend to rise somewhat during that time frame, although an increasing percentage of the overall total is taken up by cull cows (which are generally only used for hamburger). However, with the grilling season long past, cattle and beef prices tend to dip as grocers and consumers focus more attention upon cheaper cuts such as roasts. Still, with consumer demand still seeming to be holding up relatively well despite rising retail prices, it seems to early to be looking for a top in cattle prices.
90-day outlook: The months of November and December tend to be similar to October for the cattle market. Although the onset of the holiday season shifts consumer attention to turkeys and hams, cattle prices traditionally don’t suffer all that badly during the period. The fact that Thanksgiving arrives on November 23 this year, thus over a week before the first weekend in December, beef is likely to be featured rather heavily that weekend, which should also prove price supportive. Again, cattle and beef supplies are likely to remain cyclically tight, with the demand outlook potentially diminishing as retail prices continue posting record highs.
What to do: Get current with feed advice. Carry 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 should have all corn-for-feed and soymeal needs covered in the cash market through September.
