Hogs
Price action: Anticipation of a seasonal downturn weighed on hog futures Friday despite cash and wholesale strength. Nearby August futures fell 95 cents to $92.20, while most-active October skid 45 cents to $76.575. That latter represented a weekly drop of $1.625.
5-day outlook: The hog and pork industry is anticipating the looming onset of the traditional late summer-fall breakdown in prices across the complex. That essentially explains the futures drop despite the sustained strength exhibited by cash hog and wholesale pork prices. The CME confirmed the latest official quote for its hog index at $93.53 for Wednesday. USDA data indicates Thursday’s quote will rise another 11 cents to $93.64. But traders likely view the very modest size of the implied rise as a sign of a looming cash market top and subsequent reversal. On the other hand, the August futures close suggests the reversal won’t be quick or dramatic, since it implies the index will only drop by about $1.25 by the time the contract expires on Aug. 14. That may reflect expectations for sustained pork strength, since pork cutout surged $2.89 to $108.75 at noon.
The industry is unlikely to be expecting a shortage of hogs, since this week’s preliminary slaughter total at 2.455 million head topped the year-ago figure by 19,000 (0.8%). This continues the recent weekly pattern of topping year-ago totals by 1%-2%. The June USDA Hogs & Pigs report indicated second-half hog supplies would average about 1% over comparable 2023 levels.
30-day outlook: History strongly suggests hog supplies and slaughter rates will begin surging in mid-August, rise to greatly elevated levels by late September, then edge toward annual highs in mid-December. Thus, few are likely to be surprised if hog prices fall sharply over the next 6-8 weeks. The size of the drop probably depends upon the strength of pork demand from grocers and consumers. It seems clear grocers shifted their focus toward more active pork features in mid-July. If those attract strong consumer buying, they may continue that pattern through Labor Day, which in turn could limit the size of the anticipated August breakdown. We are cautiously optimistic on this score.
90-day outlook: October futures around $76.50 imply a drop of approximately $17.00 over the next 10 weeks. As indicated above, we are guardedly bullish toward deferred futures based on the cash and wholesale strength seen lately. Falling cash hog and wholesale pork prices, along with strong returns if consumers react well to late-summer pork features, would probably encourage grocers to continue that practice. That would also mark a decided contrast to the last two years, when aggressive increases in retail pork prices badly undercut consumer demand and the hog market during fall. This is likely the pivotal issue for the hog/pork complex during the next three months.
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 should have all corn-for-feed and soymeal needs covered in the cash market through August.
Cattle
Price action: October live cattle closed down $1.65 at $182.075, near mid-range and hitting a six-week low early on. For the week, October live cattle lost $6.575. October feeder cattle futures lost $4.30 to $246.575, near mid-range and hit a 7.5-month low today. For the week, October feeders fell $11.725.
5-day outlook: The late-week meltdown in the cattle futures markets that included technically bearish weekly low closes today can be attributed to chart-based selling and at least partly to downbeat U.S. economic data that included a weakening manufacturing report on Thursday and Friday’s jobs report showing slower-than-expected growth in non-farm payrolls and an uptick in unemployment in July. The data sparked a strong sell-off in the U.S. stock market that implies less consumer confidence that could negatively impact beef demand at the meat counter.
Thursday’s cash cattle trading wasn’t as weak as initially thought. USDA put Thursday’s five-area average at $194.75, which pulled the four-day average up to $194.68. That’s well above the week-ago figure at $193.13, but below the overall weekly average at $195.21. The noon report today showed Choice grade gaining 76 cents to $313.55, while Select grade dropped 77 cents to $296.69. Movement at midday was decent at 76 loads.
30-day outlook: October live cattle futures price remains well below the current cash price average, which suggests trader pessimism about cash market fundamentals in the coming weeks. The sell-off in the stock market and weaker U.S. economic data this week has quickly sparked talk of a possible U.S. recession. Cattle producers and futures market bulls do not want to see continued downbeat U.S. economic data and a wobbly stock market heading into early fall, during which time can see historically turbulent price action in the stock and financial markets, anyway.
90-day outlook: There are still tight supplies of market-ready cattle in feedlots. However, cattle weights are on the rise. Average cattle weights will likely climb to record highs later this year, suggesting higher beef production. Key for the cattle market bulls in the coming months will be consumer demand for beef remaining strong. Despite it being past mid-summer, boxed beef movement remains robust, suggesting consumer demand remains solid. Persistently vigorous consumer demand for beef heading into the fall would mitigate the price impact of seasonally increased beef production levels.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through August.