Hogs
Price action: Firming equities seemed to spark renewed confidence in the livestock markets Friday. Expiring August hog futures dipped 22.5 cents to $89.80, while most-active October futures climbed 35 cents to $73.975. That represented a weekly decline of $2.60.
5-day outlook: As usual, several pork packers gave their workers a floating holiday Monday, causing a sizeable drop in Monday’s slaughter total. That translated into the preliminary weekly total at 2.372 million head, which represented an annual increase of about 4,000 head (0.2%). This nominally continues the trend of annual increases implied by the June Hogs & Pigs report. However, pork demand is apparently falling off seasonally, which largely explains this week’s sizeable wholesale price losses and the decline in hog futures. That seems likely to continue next week as hog supplies and slaughter rates begin their traditional late summer-fall surge.
30-day outlook: Slaughter rates will almost surely rise quickly during late August, dip around Labor Day, then resume the increase through much of September. BLT season is winding down, which will likely undercut pork belly values and could pull the whole complex lower. However, while it’s common for cash hog prices to drop through September, having happened in 8 of the past 10 years, the other two years (2018 and 2020) saw huge gains. We believe this reflected active grocer featuring of pork to consumers and think the belated July hog rally could presage similar activity through late summer. That could power moderate cash gains, which in turn could spur a strong October futures advance.
90-day outlook: Hog and pork supplies will remain seasonally elevated through the fourth quarter, as reflected by weekly hog slaughter routinely posting an annual high just before Christmas. And with Labor Day having passed, consumer demand for most pork cuts, with the exception of hams to be featured as holiday dinner entrées, is relatively weak. Thus, having hog prices prove remarkably weak is not surprising. But, if the cash market posts a September rally driven by active retail featuring, that strength may persist well into autumn. A drop to fresh cash lows would be most likely, but the lows reached might prove well above those currently implied by October and December futures.
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: Despite widely anticipated cash weakness cattle futures rebounded strongly Friday. Expiring August live cattle jumped $2.20 to $184.25, while most-active October leapt $3.125 to $181.15. The latter marked a weekly decline of 92.5 cents. August feeder futures spiked $4.125 to $246.50, while the September contract surged $4.175 to $241.60. The September contract close represented a weekly dive of $6.55.
5-day outlook: As was widely expected, cash cattle trading moved significantly lower Thursday, with the five-area average for the day coming in at $190.22. That dragged the four-day total down to $191.43, which represented a weekly drop of $3.25. And the industry is likely anticipating more of the same in the next few weeks (as implied by the August live cattle contract closing at $184.25). And yet, futures rebounded strongly. We suspect firming wholesale prices sparked the bounce, since elevated beef values likely reflect robust grocer demand for product. Choice cutout rose $1.43 to $313.55. Sustained beef strength and today’s futures bounce could translate into general firmness next week.
30-day outlook: Much depends upon the aggressiveness with which grocers feature beef over the next few weeks and how consumers respond. Retailers have kept a lid on retail beef prices despite cash cattle and wholesale beef prices trading at greatly elevated levels through much of 2024. The discounted levels reached by nearby futures at midweek implied expectations for much more of the sale in the short run. However, today’s futures bounce suggests traders think chances of big seasonal losses are now less likely. We suspect this largely reflects more trader confidence about the equity market outlook and the economy. We tend to agree, thinking current fundamentals will translate into increased firmness in cattle and wholesale beef prices.
90-day outlook: The large discounts built into live cattle futures will encourage producers to actively market their animals, thereby reducing the potential for a backlog of overfed animals in domestic feedlots. That will tend to support cash prices in the coming weeks. Conversely, the steep discounts will discourage feedyard managers from aggressive placements of calves and yearlings in their lots, which will also work to reduce available feedlot supplies down the road. Thus, while further short-term losses could be forthcoming, current circumstances suggest deferred fed cattle futures are undervalued.
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.