Hogs
Price action: Cash hog and wholesale pork strength powered fresh gains in hog futures. The December contract expired 17.5 cents higher at $83.725. February futures surged $1.125 to $85.60 at the close. That represented a weekly drop of $1.725.
5-day outlook: After proving quite weak Monday and Tuesday, hog futures ended the week on a strong note. That reflected surprising cash hog and wholesale pork market strength as the week progressed. For example, the hog index slipped early in the week, but turned decidedly higher, rising Tuesday and Wednesday to $83.92, with Thursday’s preliminary quote for the index skidding 2 cents to $83.90. Moreover, after having dipped below $90.00 last week, pork cutout moved modestly higher over the past several days, then leapt $3.86 to $96.17 at midsession today. Given the extreme slaughter highs routinely reached at this time of year, this suggests vigorous pork demand from grocers and consumers. Indeed, while pork bellies surged sharply this morning, pork ribs were the only primal to decline at noon. This week’s hog slaughter reached “just” 2.573 million head this week, which marked a year-to-year drop of 122,000 head (4.5%). This may reflect the fact that the calendar shift caused by Christmas on a Wednesday has packers planning a big slaughter push next week (whereas they cut back before Christmas on Monday last year). Still, this implies the relative shortage of hogs seen this fall is getting worse. This bodes well for hog futures next week.
30-day outlook: The industry is looking forward to the Dec. 23 release of the USDA’s quarterly Hogs & Pigs report. The numbers from the September report will almost surely be revised substantially lower. Moreover, the reduced numbers slaughtered so far during December suggest the shortfalls will persist well into winter. This week’s CPI data for pork prices raised some concerns about rising retail costs to consumers, which may translate into reduced consumer pork demand. Nevertheless, we think prospects for an early-2025 hog/pork rally are strong, although February futures priced around $84.60 imply modest gains at best.
90-day outlook: The early-winter hog rally typically runs from the holiday season into mid-to-late February. Again, we think the chances of a strong performance are good. However, the path taken by the market during late winter and early spring can be quite variable, with some years seeing strong cash gains, while flat to lower prices seem more likely. The late arrival of Easter on April 20 suggests processors and grocers will not have to actively pursue hams to rebuild inventories in time for the holiday. Still, as long as grocers continue to control price increases to consumers and hog supplies keep falling short of year-ago levels, the 90-day outlook seems rather promising.
What to do: Get current with feed coverage.
Hedgers: You have 50% of first-quarter production hedged in February $84.00 puts at $3.35.
Feed needs: You have all corn-for-feed needs covered in the cash market through the end of December. You have all soymeal needs in the cash market through the third week of January.
Cattle
Price action: Expiring December live cattle rose $1.525 to $193.65 Friday, while most-active February futures climbed $1.175 to $192.025. That marked a weekly surge of $5.85. January feeder futures fell 90 cents to $257.65, which represented a weekly rise of $1.825.
5-day outlook: Cash cattle and wholesale beef fundamentals remain very supportive of the short-term cattle outlook. After having surged to $194.00 Wednesday, the five-area cash average rose another $1.00-plus, reaching $195.21 Thursday. That brought the four-day average up to $194.31. Next week will be a full week of operation for the packers, so they’ll probably need to buy more cattle next week. Moreover, after surging Thursday, beef cutout values continued rising at midsession today, with Choice cutout gaining 66 cents to $315.90 and Select cutout climbing $2.37 to $282.85. That left the Choice/Select spread at $33.05, still extremely wide and pointing to a shortage of high-quality beef. We see little reason cash prices won’t prove at least steady-firm next week, which with futures remaining at significant discounts seems likely to continue supporting futures as well.
30-day outlook: Unlike the last few years in which the year-end holiday season caused packer cutbacks over a three-week period, those will be limited to two weeks this year. This suggests packers will need to keep buying cattle in a timely manner, and likely limit short-term downside risk due to slowed packer operations. The strong rise in retail beef prices posted last month does raise some concerns about sustained increases in the cost of beef to consumers, but we don’t see demand issues arriving during early winter. On the other hand, there is always risk of an arctic front coming across the Plains and distressing feedlot cattle, which could further crimp the number of market-ready animals. Thus, prospects for seasonal strength seem high.
90-day outlook: The first-quarter supply of fed cattle is likely to remain seasonally tight. Cattle weights also tend to turn decidedly lower by midwinter, thereby further reducing weekly beef production. In addition, domestic supplies of yearlings and calves are likely approaching cyclical lows. We’ll know more on that score when the USDA releases its annual Cattle report in late January. Ultimately, this implies the feedlot population will remain comparatively low. Moreover, the issue over the emergence of screwworm infections in Mexico and the resulting ban on imported animals from that country could exacerbate the underlying shortage. Thus, we think there’s a strong possibility fed steer prices will climb to fresh record highs by late winter and/or early spring.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You have all corn-for-feed needs covered in the cash market through the end of December. You have all soymeal needs in the cash market through the third week of January.