Livestock Analysis | October 6, 2023
Price action: Expiring October hog futures rallied $1.425 to $82.325 Friday, while most-active December climbed $1.30 to $73.575. The latter represented a weekly gain of $1.80.
5-day outlook: Traders apparently expect the cash hog market to stabilize and/or possibly rally next week and longer; that is implied by the nearby futures gains posted Thursday and Friday, since the moves greatly reduced the discounts built into the October and December contracts. Wednesday’s official quote for the CME hog index inched above the preliminary figure at $83.69 to $83.70 on revisions to yesterday’s CME slaughter hog report. But today’s initial calculation for Thursday fell another 68 cents to $83.02. Thus, the futures gains posted the past two days cut the discounts built into the October and December contracts to 70 cents and $9.45, respectively, from much wider levels at Wednesday’s close. The stubborn stability of the wholesale pork market, which bounced $1.41 to $96.39 at noon today, likely played a role in that strength, but the big futures gains strongly imply industry insiders expect the cash market will outperform previous expectations in the short-term (especially since October futures expire at noon next Friday).
30-day outlook: Given the substantial increases posted by weekly hog slaughter totals since mid-August, recent history suggests the weekly results won’t increase all that substantially over the next six weeks, with the situation then becoming more volatile with Thanksgiving arriving on November 23. Having this week’s hog kill fall 1.4% under year-ago after jumping 4.6% annually last week may also have persuaded traders hog supplies will prove relatively flat, particularly after this week’s total fell 35,000-head from last week. The fact that ending-August ham stocks fell well below levels reached in recent years suggests the industry will have to be more aggressive in acquiring and preparing the largest part of the hog/pork carcass during the run-up to the holiday season. Grocers also seem more likely to continue actively featuring pork this fall after belatedly passing reduced hog and wholesale pork prices to consumers last spring.
90-day outlook: The seasonal shift from tight summer hog supplies and robust grilling demand to the fall situation of a seasonal supply surge and seasonally poor demand for most products other than hams routinely causes a big drop in hog prices during the second half of the year. But indications of improved consumer demand in response to reduced retail prices, along with the comparative ham shortage, suggest the fourth-quarter price drop won’t be all that dramatic. Having the hog and pork complex improve upon the huge losses posted in late 2021 and 2022 seems quite possible.
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 soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
Price action: December live cattle futures rose $1.30 to $186.675 and nearer the session high. For the week, December live cattle lost $1.25. November feeder cattle futures rose 57 1/2 cents to $250.875 and near the daily high after hitting a 2.5-month low early on today. For the week, November feeders fell $4.025.
5-day outlook: The cattle futures markets saw modest corrective rebounds Friday amid an upbeat U.S. jobs report and a rebound in the U.S. stock market that gave the general marketplace better risk appetite. However, cattle and feeder futures need to show some decent follow-through buying strength early next week to begin suggesting live and feeder markets have put in near-term price bottoms.
Persistently bullish cattle and beef market fundamentals are likely to limit further losses in the near term. So far this week, the average cash cattle trade is $182.51, up 45 cents from Wednesday, but down $1.13 from last week. The noon report Friday showed Choice boxed beef prices jumped $4.86 to $302.62. Select grade rose 43 cents to $275.20. Movement at midday was 64 loads.
30-day outlook: Crude oil futures prices today hit a five-week low and are now down over $12 a barrel from the late-September high. It’s likely the crude oil market has put in a near-term market top. Falling gasoline prices at the pump in the coming weeks would give U.S. consumer confidence a boost, which would likely lead to better retail demand for America’s favorite meat.
90-day outlook: Supplies of market-ready fed cattle should remain tight at least into the end of the year. That’s a bullish element for the fourth quarter. However, still-elevated beef prices at the meat counter may prompt consumers to find cheaper protein substitutes. Today’s upbeat U.S. jobs report suggests the U.S. economy continues to grow at a decent clip. The report is a double-edged sword for the cattle markets the next few months. A growing economy means better consumer confidence. However, the good economic growth rate also suggests the Federal Reserve will continue to raise interest rates in an effort to choke off consumer and commercial demand, in order to further tame inflation.
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 soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
