Livestock Analysis | January 26, 2024
Price action: Hog futures continued their rally into the weekend, although nearby futures backed away from daily highs. Expiring February futures rose 62.5 cents to end the week at $74.925, which represented a weekly rise of $4.175. Most-active April futures climbed 70 cents to $83.25, marking a weekly gain of $5.10.
5-day outlook: Current circumstances strongly favored the upside for the hog market this week, especially with the equity markets, crude oil and cattle leading the way higher. The CME lean hog index is still rising, although the rate of the rise wasn’t all that impressive later in the week. Wednesday’s official quote matched Thursday’s calculation at $69.67, up 28 cents, this morning. Today’s preliminary figure for Thursday added another 23 cents to $69.90. Wholesale prices also remained strong all week, with today’s midsession quote at $91.75, up $2.84 from Thursday’s late quote, marking its highest level since mid-October. It was also quite encouraging to see midday ham prices jump $8.31 to $78.12, since we believe ham strength will be required if the cash market is to justify the premium built into April futures. Reduced hog supplies and slaughter rates will also be needed if the market is to rally so strongly.
A seasonal supply reduction is almost surely coming, but flat-to-lower hog numbers compared to those from spring 2023 (as indicated by the December USDA hog report) would also help. This week’s slaughter total, at 2.719 million head, up 6.8% from year-ago, was not especially helpful in that regard. The outsized total may simply reflect the industry catching up after four weeks of packer cutbacks between Christmas and mid-January, but it raises doubts about cyclically diminished supplies in line with USDA numbers.
30-day outlook: Historical patterns suggest cash hog prices will continue working higher into mid-to-late February, although the rise doesn’t always occur, as was demonstrated in early 2023. Seasonally declining supplies play a big role in such gains. Again, hog numbers matching the implied USDA forecast would also be supportive of the price outlook. We think grocers are actively featuring pork at attractive prices, which is boosting consumer demand. In addition, Friday’s ham market rise suggests processors are actively pursuing hams for Easter dinner features.
90-day outlook: The price outlook for late winter and early spring isn’t at all clear. The most common pattern comes in the form of a setback from the mid-to-late winter high into early April, which was roughly what was seen (at very low levels) last year. The market has sustained the winter advance into spring of some years. For example, the hog index bottomed at $59.93 in late December 2020 and rose almost without interruption to a June 2021 peak at $121.89. We think similar strength this spring will require grocers to actively feature hams for Easter on March 31 this year. Otherwise, prospects for sustained early-spring strength diminish significantly.
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 January.
Price action: April live cattle futures rose 97 1/2 cents to $181.675, nearer the session high and hit a 2.5-month high. For the week April cattle gained $4.30. March feeder cattle futures gained $1.525 to $239.70, near mid-range and hit a 2.5-month high. For the week, March feeders rose $7.75.
5-day outlook: This week’s strong gains that included technically bullish weekly high closes in April live cattle and March feeders set the table for follow-through chart-based buying early next week. However, both markets are also well into short-term overbought territory and due for corrective pullbacks soon. Fundamentally, higher cash cattle prices and tight market-ready supplies that are partly due to underperformance of animals from the early-January snow and cold in the Midwest are bullish. We look for higher cash cattle trading again next week. The cash cattle trading that occurred early this week was largely confined to the southern Plains, at around $174.00. However, trading broke loose Thursday and in the north, with cattle trading in the $175.00 to $178.00 range. That boosted the four-day five-area average to $175.39. The noon report showed Choice grade boxed beef prices rose $1.87 to $300.55, while Select grade rose $1.29 to $289.14, taking the Choice/Select spread to $11.41. Movement at midday was 55 loads.
30-day outlook: Cash cattle prices are likely to remain firm in the coming weeks after the mid-January severe cold and snow in the Midwest. Having Choice-grade beef cutout again move above $300.00 late this week suggests ongoing tight supplies and good consumer demand. Seasonal patterns suggest supplies of high-quality cattle and beef will continue declining into the late February and/or March period.
90-day outlook: This week’s U.S. economic data was overall upbeat, suggesting the economy is on a glide path for a soft landing. Major U.S. stock indexes this week hit record highs. That’s good news for U.S. consumers as the Federal Reserve is likely to lower interest rates in the coming months. That means better demand for Americans’ favorite red meat in the coming months.
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 January.
