Livestock Analysis | December 15, 2023
Price action: After dipping in early trading, hog futures powered higher again Friday. Nearby February futures ended the week at $71.90, up $1.425 on the day and up $2.925 from last Friday.
5-day outlook: Hog traders have rather clearly become much more optimistic about the winter outlook than was the case a few days ago. After leaping above the $70.00 level Thursday, the nearby February contract followed through strongly to the upside again today. We continue harboring suspicions the industry has come to expect smaller numbers on next Friday’s quarterly USDA Hogs & Pigs report than previously thought. The cash market isn’t encouraging, as indicated by the hog index, which officially dipped 38 cents to $67.75 (for Wednesday) this morning, with Thursday’s preliminary quote dropping another 60 cents to $67.15. On the other hand, pork cutout surged $2.74 to $86.31 at noon today. Big belly gains powered the advance, but we would also point out that pork cutout has held up well despite a $7.00 drop in ham values since noon last Friday. Consumer demand may be offsetting the seasonal peak in hog/pork production. Today’s February close just under the 40-day moving average suggests hog futures will struggle early next week.
30-day outlook: This week’s hog slaughter reached 2.689 million head (up 4.2% annually), which reflected gains similar to those seen in early December. The total edged out the totals from the weeks following New Year’s Day and Thanksgiving to post an annual high here in mid-December. This is normal, although the margin of the increase is usually larger. Next week’s kill will probably be limited by some plants giving workers a three-day Christmas weekend, while the two weeks following will see big holiday cutbacks. The ongoing year-to-year slaughter gains reflect cyclically increasing supplies. We tend to expect similar short-term implications from the Dec. 22 Hog report, but this week’s late futures gains make us wonder if likely USDA indications of smaller increases during winter and spring will have some credence (unlike the case on the reports extending back to this time next year). We are cautiously optimistic about the market’s ability to rally in early 2024, as has regularly been the case in the past (despite deviations from that pattern in three of the past five years).
90-day outlook: As mentioned above, cash hog prices have historically tended to rally from early January into mid-to-late February, then move sideways to lower into early spring. Again, we suspect comparatively strong consumer demand will play a role in such seasonal strength in the new year. The early arrival of Easter (March 31) could also spur grocer buying of hams this winter. They kept ham prices very high last Easter and were rewarded by dismal sales. Sustained limits on retail price increases, which almost surely helped support the market during the second half of 2023, could amplify the strong seasonal advance usually seen next spring.
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 December.
Price action: February live cattle rose $1.425 to $169.35 and near the daily high. For the week, Feb. live cattle rose $3.625. January feeder cattle futures gained $1.55 to $220.90 and near the daily high. For the week, January feeders rose $5.60.
5-day outlook: It was a good week for the cattle futures bulls, including the technically bullish weekly high closes in February live cattle and January feeders today. Look for some follow-through technical buying next week, which would suggest the cattle markets have put in seasonal lows. Only very light cash cattle trade had occurred at midday Friday at $167.00 to $168.00 on Wednesday and Thursday, mostly in the northern market. That’s around $1.00 to $2.00 lower than last week. The noon report today showed Choice grade boxed beef prices fell 24 cents to $292.08, while Select grade rose $3.27 to $261.53. Movement at midday was good at 91 loads. The Choice-Select spread at midday narrowed to $30.55. Retailers are stocking up on beef for the post-holiday period. November retail price reductions are likely to prompt better consumer demand. The Choice-Select spread is presently at $30.55. Next Friday afternoon’s monthly USDA cattle-on-feed report will give traders their latest update on cattle supplies and marketings.
30-day outlook: The general marketplace got a dovish surprise from the Federal Reserve Wednesday. While the Fed left interest rates unchanged, the FOMC and Fed Chairman Jerome Powell pivoted from their hawkish rhetoric of a tight monetary policy and toward loosening policy, including future interest rate cuts. Markets cheered the Fed news as the U.S. stock indexes hit new highs for the year and other interest rates, like bond yields, dropped. This is good news for the cattle markets in the coming months. It suggests improved consumer confidence and better U.S. economic growth. In turn, that likely translates into better demand for beef at the meat counter.
90-day outlook: The recent cash cattle market declines, rising packer supplies and holiday season slaughter reductions by packing houses may keep the cattle and beef markets under pressure through the end of the year. However, history suggests cattle slaughter will fall to an annual low in late winter. That may push cattle prices back toward the recent highs in the first half of 2024—especially since interest rates will be declining and consumer attitudes likely more upbeat in the new year.
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 December.
