Note: Due to ongoing coverage of the Pro Farmer Crop Tour next week, afternoon analysis newsletters will be condensed and replaced by an extended version of After the Bell.
Hogs
Price action: October lean hog futures fell $0.375 to $81.75, nearer the daily high, hit a six-week low early on and for the week down $0.475.
5-day outlook: Chart-based specs continue to control the futures market as technicals remain firmly bearish, including today’s bearish weekly low close in October hogs. Prices are in a downtrend on the daily bar chart. Declining cash hog prices also favor the futures bears. The trainwreck in the cattle futures market late this week has also spooked the hog futures bulls.
The USDA noon pork showed cutout value was up $1.53 at $100.45, led by gains in butts and picnics. Movement at midday was good at 258.10 loads. The latest CME lean hog index is down 2 cents to $95.87. Monday’s projected CME index price is down 19 cents at $95.68. The national direct five-day rolling average cash hog price quote for today is $96.63.
30-day outlook: The expiration of the August contract will make October futures the front-month contract, which currently trades at a notable discount to the cash index. This shift could lead to greater price volatility as the new front-month becomes more sensitive to daily moves in the CME lean hog Index and the cash hog market. Historically, the lean hog index softens from late summer into fall as more hogs reach market weight, though October futures have already priced in much of this expected decline.
90-day outlook: The weakening CME lean hog index and national direct prices suggest a seasonal top in futures as summer demand softens and supplies typically build into the fall. The shake-up in the cattle industry, with recent plant closures and historically tight cattle supplies, are likely to continue to impact the hog industry and futures markets in the months ahead. Hog traders can argue the situation could be bullish for hogs, given historically elevated beef prices at the meat counter meaning better substitution demand for pork. However, the uncertainty in the cattle industry is price-bearish not only for cattle, but could also spill over into keeping hog traders more uncertain.
What to do: Get current with feed coverage.
Hedgers: You currently have all risk in the cash market.
Feed needs: You have corn-for-feed and soymeal needs covered through September in the cash market. Be prepared to make purchases if value prices continue.
Cattle
Price action: October live cattle futures fell $1.175 to $218.875, nearer the daily high, hit an eight-month low early on and for the week were down $6.40. September feeder cattle futures lost $2.65 to $334.55, nearer the daily high, hit an eight-month low early on and for the week were down $10.675.
5-day outlook: The cattle futures markets today saw some panic selling early in the session by traders that were spooked by uncertainty following news Tyson Foods “is making strategic changes to its beef operations to position the company for long-term success,” said a company press release Thursday. The company will end operations at its Joslin, Illinois, beef facility and its Eagle Mountain, Utah, case-ready facility and is pursuing the sale of its Pasco, Washington, beef facility. However, futures prices recovered as the session progressed. Lower cash cattle trade this week was also bearish for futures today. Still, today’s technically bearish weekly low closes in live and feeder cattle futures set the table for more price pressure from the chart-based specs early next week.
Livestock stress has been quite high in the central and southwestern Plains this week, with daily temperatures well over 100 degrees, impacting areas from Kansas to Texas. Animal weight gains have likely been poor in recent weeks.
USDA at midday today reported active cash cattle trading at lower money, with steers averaging $229.40 and heifers $229.44. The agency Monday reported average cash cattle trading last week at $235.21. The noon report today showed weaker boxed beef prices, with Choice grade down $1.17 at $374.73 and Select grade down $0.13 at $349.11. Movement at midday was 62 loads. The Choice-Select spread is presently plus $25.62.
30-day outlook: Labor Day generally provides a bump to boxed beef prices. Over the past 15 years, on average, Choice boxed beef is $9.73, or 4%, higher on the first market day of September compared to the first of August, and finishes higher in 12 of 15 years. Those gains are typically short-lived compared to the mid-summer grilling season, however. Boxed beef prices on the last day of September are on average $3.36 lower than the first day of August. That indicates that in typical years weakening demand into the autumn months results in a quick erasure of gains notched during the final full month of summer.
90-day outlook: The major U.S. stock indexes hitting record highs this summer are good for upbeat consumer attitudes that could support better consumer demand for beef at the meat counter. This week’s U.S. inflation reports that showed tamer readings than in previous months was also a positive for consumers, suggesting the Federal Reserve will hold off on raising interest rates. All of the above lean in favor of better demand for beef at the meat counter. However, likely superseding the above elements for consumer confidence is retail gasoline prices that are still elevated. If such remains the case, demand for beef could be crimped with gasoline prices around $4.00 a gallon at the pumps.
What to do: You have corn-for-feed and soymeal needs covered through September in the cash market. Be prepared to make additional purchases.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You have corn-for-feed and soymeal needs covered through September in the cash market. Be prepared to make purchases if value prices continue.