Livestock Analysis | October 20, 2023
Price action: Hog futures continued their seasonal breakdown Friday, increasing the discounts built into the nearby contracts. Nearby December futures dove $2.00 to $66.00 at Friday’s close; that marked a weekly drop of $3.55.
5-day outlook: The seasonal drop in cash hog and wholesale pork prices seems likely to continue next week. The declines reflect seasonally large hog supplies and seasonally diminished consumer demand for most pork cuts. This week’s slaughter total reached 2.61 million head, up just 1,000 from last week and but 40,000 (1.5%) over the same week last year. And while pork cutout bounced 88 cents to $88.01 at midsession Friday, it represented a $2.34 drop from last Friday’s closing quote. Given the ongoing annual increases in production, continued seasonal weakness seems quite probable.
30-day outlook: The 10-year average implies weekly hog slaughter will rise about 30,000 head from this week until the week before Thanksgiving, although recent history suggests the gains in the intervening weeks will not be particularly large. Meanwhile, consumer demand for pork other than hams is also likely to remain weak. Still, traders clearly expect the seasonal cash market decline to persist. Such pessimism may not be entirely justified since retail pork prices have recently fallen significantly below elevated year-ago levels, which could spur consumer interest. Having ending-August ham and turkey stocks fall to their lowest levels since 2020 and 2007, respectively, may also translate into improved wholesale demand for the former during the run-up to Thanksgiving.
90-day outlook: The USDA’s September Hogs & Pigs report implied hog slaughter would fall to year-ago levels beginning in early November, although the agency has consistently underestimated hog supplies this year. Still, if the USDA numbers prove correct and pork demand has improved slightly from year-ago levels, the cash and wholesale markets may outperform the bearish expectations built into nearby futures. The cash market didn’t ultimately bottom until it reached the $71.00 area last April, but the December 2022 contract cash-settled against the hog index at $81.88 last December 14. It’s been much more common for the market to post an annual low between Christmas and New Year’s Day in recent years.
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 closed down 67 1/2 cents to $184.625 and near the session low. For the week, December live cattle fell $2.125. November feeder cattle futures lost $2.275 to $242.225 and near the session low. Prices hit a nearly four-month low today and for the week dropped $9.35.
5-day outlook: The late-week slump in the cattle futures markets that included technically bearish weekly low closes Friday set the stage for follow-through technical selling pressure early next week. Trader and investor risk sentiment in the general marketplace deteriorated late this week, which was also a negative for the cattle markets. It’s likely that risk aversion will remain keener early next week, which is not a good scenario for already technically weak cattle futures.
This afternoon’s USDA Cattle on Feed Report was expected to be friendly, however the Oct. 1 large-lot (1,000+ head) feedlot population was reported at 11.58 million head, up 71,000 head (0.6%) from year-ago, easily topping industry expectations. September placements rose 125,000 head (6.1%) above year-ago, while September marketings at 1.663 million head, down 10.6% annually.
30-day outlook: Lower seasonal cattle slaughter levels suggest still-tight supplies of market-ready cattle in the coming weeks. Also, packers have been aggressive buyers of feedlot cattle recently. Cattle traded actively Thursday, with the 5-area direct average for Choice-grade steers rising $1.97 (from last Thursday) to $186.11. Still-solid consumer demand for beef at the meat counter should put a floor under the cattle futures markets in the near term. Today’s noon beef report showed Choice grade cutout value up $1.02 at $305.14, with Select grade up 76 cents at $278.24. Movement at midday was good at 89 loads. The Choice-Select spread is presently $26.90, which also suggests persistently tight supplies of market-ready feedlot cattle in the near term.
90-day outlook: General U.S. economic performance will play a key role in the trajectory of cattle and fresh beef prices in the coming months. Recent U.S. economic data remains generally upbeat, which continues to defy those predicting the U.S. economy is headed for a slowdown. That’s been a positive for the cattle markets. However, there are storm clouds brewing as the seemingly relentless rise in U.S. Treasury yields to 17-year highs this week hints at a contraction in consumer demand due to higher borrowing costs. Such may dent demand for higher-priced beef cuts at the meat counter.
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.
