Livestock Analysis | February 16, 2024
Price action: Strong demand continues powering the hog and pork markets. Nearby April futures ended Friday at $85.35, up 22.5 cents on the day and $4.075 higher on the week.
5-day outlook: Although hog slaughter remains quite high, as exemplified by this week’s 2.559 million head total (up 2.8% from the elevated year-ago total), hog and pork prices posted sustained gains. The hog index for Wednesday was confirmed at $75.12, up 52 cents from Tuesday, while Thursday’s preliminary quote rose another 17 cents to $75.29. Even more impressive were the wholesale price gains. After rebounding strongly from early-week losses, pork cutout added another $1.32 at midsession Friday, reaching $91.11. That marked the highest quote since early November. The fact that ham values look set to end the week over $80.00, after having averaged $77.57 over the prior week, illustrates the strength of current demand. As indicated previously, ham strength will likely be required to justify the sizeable premium still built into April futures.
The strength of export demand was illustrated by this week’s USDA report. The sales figure leapt to 71,900 metric tons (MT), the most for a single week since October 2019. The shipments total reached 75,192 MT, the largest total on record for a “normal” week. The market is showing few signs of slowing its seasonal advance.
30-day outlook: As pointed out previously, the hog market regularly follows a seasonal pattern of posting a winter peak in mid-to-late February, then working sideways to lower into early April. But there are other years, see particularly 2021, when the hog market continues climbing through late winter, then accelerating upward in spring. We believe this will be one of those years, due largely to strong demand. The latest CPI report confirmed the ongoing grocer pattern of keeping pork prices a bit lower than last year, thereby provoking a strong consumer response. We also expect them to aggressively feature hams for Easter dinner features, which could provide added support. The export numbers also point to vigorous export demand despite persistently firm pork cutout values.
90-day outlook: Given the example of persistent price weakness during the first quarter of 2023, it would be easy to assume the hog and pork market will not justify the various futures contracts trading at sizeable premiums. But we would point out that the hog index had topped $100.00 by April 15 of both 2021 and 2022. It eventually topped $120.00 in the summer of both of those years. The spring and summer strength reflects strong seasonal shifts in hog supply and demand. That is, hog slaughter typically undergoes sustained reductions from early winter into early summer. Conversely, pork demand surges during grilling season, with consumers actively buying pork steaks (butts), chops (loins), ribs and sausage (trimmings). The advent of BLT season in early summer powers bacon prices higher as well. We expect hog slaughter and pork production to routinely exceed implicit USDA forecasts for supplies to generally match year-ago levels, which is why the market probably won’t match the highs of 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 have all corn-for-feed and soybean meal needs covered in the cash market through February.
Price action: April live cattle futures rose $1.95 to $187.55, nearer the session high and hit a 3.5-month high. For the week, April live cattle gained 87 1/2 cents. March feeder cattle futures gained $2.925 to $251.025, nearer the daily high, hit a four-month high and on the week rose $3.875.
5-day outlook: Friday’s solid gains and technically bullish weekly high closes in live and feeder cattle futures set both markets up for follow-through buying from the chart-based speculators early next week. Cash cattle trade late this week continued to take place around $180.00, $1.00 below last week’s cash average but not down as much as some cattle market watchers had expected at mid-week. The noon report today showed wholesale beef values rose again, with Choice-grade up 76 cents to $296.06, while Select-grade rose 20 cents to $288.19, taking the Choice/Select spread to $7.87. Movement at midday was 73 loads.
30-day outlook: Weekly cattle slaughter totals are likely to reach the lowest levels of the year during the next month and it appears the market is not going to see a compensatory rise in steer weights after the extreme winter weather in the Plains in mid-January that negatively impacted cattle performance. The latest weekly slaughter report put steer dressed weights at 909 pounds per head. That’s a three-pound weekly drop and left the latest figure just one pound over both the year-ago and five-year averages at 908 pounds. Such suggests persistently tight supplies of market-ready cattle in feedlots in the coming weeks.
90-day outlook: The U.S. economy got a couple of warm inflation reports this week, as the consumer and producer price indexes rose more than expected. While that worried the general marketplace a bit, such implies the U.S. economy continues to show solid growth. The U.S. stock indexes again this week hit record highs, suggesting consumer confidence remains strong. That bodes well for consumer demand for beef at the meat counter this spring, as grilling season gets under way. The reports also indicated grocers kept reducing beef prices slightly as they had done in December, which likely kept consumers coming back for more at the beef counter. A continuation of that pattern seems likely to bode well for spring grilling demand.
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 soybean meal needs covered in the cash market through February.
