Livestock Analysis | November 3, 2023
Price action: Hog futures gave back a portion of Thursday’s big gains today. Nearby December fell $1.525 to $71.755. That represented a weekly gain of $1.275.
5-day outlook: While Friday’s futures decline likely reflected industry expectations for persistent seasonal weakness, this week’s futures action strongly suggests traders and industry insiders are now more optimistic about winter-spring price prospects. The short-term situation seems likely to be improved by consistently firm demand from consumers, as reflected by sustained stability in pork cutout. For example, pork cutout did slip 66 cents to $86.75 at noon Friday, but that remained within the range maintained since Oct. 19. The hog index continued its autumn decline, with Wednesday’s official quote matching expectations at $76.84; Thursday’s preliminary figure slid another 39 cents to $76.45. This week’s hog slaughter was estimated at 2.677 million head, up 4% annually. That implies no shortage of hogs in the days and weeks ahead.
30-day outlook: Grocers will almost surely begin featuring whole turkeys and hams for Thanksgiving next weekend (especially with the holiday coming quite early on Nov. 23 this year). That should provide background support for hog and pork values, especially if consumer demand proves robust. We are inclined to think it will, since those same consumers have apparently continued buying beef actively despite record-high prices in grocery stores in recent weeks. Next week’s hog slaughter probably won’t be especially large, but the total for the week before Thanksgiving will likely surge as packers boost activity ahead of the holiday.
90-day outlook: Short-term developments could set the stage for the post-Thanksgiving period as well. That is, if consumer demand for hams and turkeys holds up well, that could set the stage for sustained wholesale and cash market strength, because stockpiles of those producers are relatively tight. Ending-September ham stocks reached three-year lows, while turkey stocks have fallen to their lowest pre-holiday levels since 2006. The September USDA Hogs & Pigs report implied late-2023 hog supplies would generally match those seen in late 2022, but the consistent pattern of increases through much of this year might easily continue. USDA data points to a moderate increase in supplies in the new year. Still, we think improved consumer demand will keep the hog and pork relatively strong versus the depressed levels reached early this year.
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 November.
Price action: December live cattle futures fell 80 cents to $183.875 and nearer the session low. For the week, December live cattle rose $1.65. January feeder cattle futures fell $2.425 to $239.75 and nearer the session low. For the week, January feeders rose $4.05.
5-day outlook: It was a disappointing finish to what was still a good trading week for the cattle futures market bulls. Futures prices weakened today despite a big drop in the U.S. dollar index and more upbeat trader and investor attitudes in the general marketplace following a U.S. jobs report that suggested the Federal Reserve may be done in its interest-rate-tightening cycle.
Cattle traders at midday were still waiting cash cattle trade to develop in earnest. So far this week the average is cash price is $1.15 higher than last week in a light test. The noon report today showed Choice grade boxed beef cutout value down $1.86 at $302.67, while Select grade dropped $1.80 to $272.54, taking the Choice/Select spread to $30.13. Movement at midday was good at 111 loads.
30-day outlook: Fed steer weights rose in October despite active feedlot sales through mid-month. The resulting increase in market-ready supplies was offset later in the month by snow and cold weather that likely reduced weight gains and helped to stabilize the cash and futures markets. We still believe good consumer demand at the meat counter despite record retail beef prices will keep a floor under the cash and futures markets in the coming weeks.
90-day outlook: In an important development in the general marketplace this week that will likely positively impact the cattle market in the months ahead, U.S. Treasury yields dropped significantly. This is a clue that U.S. interest rates have peaked and the Federal Reserve will be able to halt its interest-rate-increase cycle. This scenario would be a boon for U.S. consumer and business confidence, as borrowing costs would begin to recede. Lower borrowing costs and better consumer confidence would suggest Americans would be more likely to do more purchasing of their favorite red meat for dining.
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 November.
