Livestock Analysis | September 29, 2023
Advice: We advise using the sharp price break in soybean meal futures to extend soymeal coverage by two weeks in the cash market through mid-October.
Price action: Thursday’s bearishly-construed hog report sent hog futures tumbling. Nearby October dove $3.75 to $80.20 Friday, while most-active December matched that drop to $71.775. That closing price marked a weekly drop of 40 cents.
5-day outlook: Thursday’s quarterly USDA Hogs & Pigs report indicated fourth-quarter hog slaughter will slightly exceed industry expectations for unchanged to slightly higher totals. The market probably won’t be swamped by hog and pork supplies but given cash market lows around $70.00 the past two years, traders actively sold hog futures on Friday. The latest cash and wholesale news wasn’t particularly supportive either. The CME did officially quote Wednesday’s lean hog index unchanged at $86.14, but Thursday’s preliminary figure resumed the recent decline, falling 56 cents to $85.58. Moreover, after it continued its recent downtrend through much of this week, pork cutout slid another 28 cents to $96.92 at noon today. Given these circumstances, traders are likely anticipating more of the same next week. Indeed, having this week’s hog slaughter at 2.604 million head top the year-ago level by 119,000 head (4.8%) implies short-term hog supplies will prove quite plentiful and tend to exert increased downward pressure on prices. And while it isn’t uncommon for a late summer-early fall rally to persist into mid-October, an early end to the move isn’t unusual either.
30-day outlook: Historically, hog slaughter tends to work its way higher after rebounding sharply after Labor Day, although last year’s rise from mid-September to mid-November was quote modest. The real question is how strong demand will prove to be during the coming weeks. Greatly elevated summer prices in 2021 and 2022 likely exaggerated the fall-winter breakdown, but this year’s much more modest peak, as well as grocer cuts to retail prices last spring, seem likely to result in improved consumer demand for pork. In addition, the industry is facing a relative shortage of hams available for the holiday season. If processors and grocers actively work to boost those supplies, that improved buying could help put a relatively firm floor under the cash hog market during October.
90-day outlook: The same might be said of November and December hog market prospects as well. The hog report implied very modest increases in supply during the last two months of the year, whereas greatly elevated wholesale (and retail) beef prices seem likely to keep grocers featuring pork rather aggressively. Hog weights consistently running below their five-year average also suggest slight reductions in pork production per head as well. Ultimately, the seasonal downtrend will probably last into the year-end holiday season, although it isn’t terribly unusual for the cash and wholesale markets to post an earlier low.
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: NEW ADVICE -- Extend soymeal coverage by two weeks in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
Advice: We advise using the sharp price break in soybean meal futures to extend soymeal coverage by two weeks in the cash market through mid-October.
Price action: December live cattle futures lost $2.50 at $187.925 and near the daily low. For the week, December live cattle fell $3.425. November feeder cattle futures dropped $2.775 at $254.90 and near the session low. On the week, November feeders lost $8.625.
5-day outlook: Today’s big declines in December live cattle and November feeders, including a technically bearish weekly low close in December live cattle, set the stage for follow-through chart-based selling pressure early next week. Cash cattle market fundamentals have deteriorated a bit recently. Cash cattle trade averaged $183.59 so far this week. That’s down 95 cents from last week’s cash average of $184.54. The noon report showed Choice grade boxed beef cutout rose 90 cents to $302.41, while Select fell 11 cents to $277.33, taking the Choice/Select spread to $25.08. Movement at midday was 70 loads.
30-day outlook: The overall outlook for the cattle markets remains positive. Last week’s USDA Cattle-on-Feed report suggested fed cattle supplies will remain tight at least through the end of the year. Also, this week’s USDA Cold Storage Report indicated a modest seasonal rise in inventories last month, but with the implication consumer demand remained strong in late summer. Record-high retail beef prices may crimp consumer demand at some point, but that point has not been the case yet.
90-day outlook: USDA on Thursday reported upbeat U.S. beef export sales of 17,700 MT for 2023, up 29% from the previous week and up 42% from the four-week average. U.S. beef sales abroad will have to continue to improve for cattle prices to remain at their elevated levels. A strong U.S. dollar index that this week hit a 10-month high will be an impediment for better U.S. beef sales abroad—especially as beef prices are already historically high.
What to do: Extend soymeal coverage by two weeks in the cash market through mid-October. 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: NEW ADVICE -- Extend soymeal coverage by two weeks in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
