Hogs
Price action: The February lean hog contract expired at $89.475 at noon Friday, up 10 cents from Thursday. The deferred contracts declined, with most-active April sinking 50 cents to $92.60. That represented a weekly rise of 45 cents.
5-day outlook: Cash hog and wholesale pork prices look set to end the week on a strong note. For example, pork cutout surged $1.34 to $102.21 at midsession Friday. Pork bellies and hams led the way higher. Meanwhile, cash prices continued climbing as well. The CME officially confirmed Tuesday’s quote for the hog index at $87.08, up 89 cents from Monday. Wednesday’s unofficial quote rose another 98 cents to $88.06, with Thursday’s USDA data indicating the quote will rise another 71 cents to $88.77.Seasonal patterns suggest the ongoing price advance will continue next week. However, this week’s preliminary slaughter total reached 2.540 million head, which marked an annual drop of just 10,000 head or only 0.4%. Given the diminishing nature of recent year-to-year declines, this may undermine bullish confidence in expectations for sustained annual reductions in hog supplies.
30-day outlook: The late-winter outlook seems likely to prove quite firm if hog supplies resume running several percentage points below year-ago levels. On the other hand, a shift toward sustained supply increases, as implied by the December USDA Hogs & Pigs report, could undermine the whole complex. Robust demand from processors, grocers and consumers seems likely to continue supporting hog and pork prices, especially if we’re correct in thinking the industry will actively buy and build ham inventories for Easter dinner entrees in the coming weeks. Conversely, if the ham market proves weak, prices could prove vulnerable to a significant late-winter slide.
90-day outlook: The December Hogs and Pigs report implied modest year-to-year increases in hog supplies. However, the strong seasonal tendency for hog supplies and slaughter rates to decline from early winter highs to annual lows in early summer will probably power a sizeable price surge during that span. This could prove especially true if grocers hold the line on retail pork prices. If recent annualized reductions in hog slaughter presage similar losses over the next 3-5 months, the price outlook improves that much more. The pork belly situation could also prove key to the outlook. Bears are likely hoping the significant January rise in retail bacon prices will stifle consumer demand, whereas bulls will be hanging their hats on the fact that ending-2024 pork belly stocks were the third lowest of the past 10 years. If grocers don’t actively boost bacon prices, the indicated potential for reduced belly supplies could amplify the spring hog rally.
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: You should have all soymeal needs covered in the cash market through March. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: The cattle markets continued their late slide Friday. Expiring February live cattle dropped $1.80 to $197.75, while most-active April tumbled $2.275 to $194.25. The closing quote represented a weekly drop of $2.525. March feeder futures ended the week at $266.35, marking a daily loss of $1.625 and weekly gain of $1.45.
5-day outlook: This week’s late cash action suggests the cattle and beef complex will continue sliding next week. In particular, the latest USDA data indicates light fed cattle trading began Thursday at $203.00 in the north, implying larger weekly losses in that region than in the south (where prices had been weaker in recent weeks). Futures traders, via the February futures close, apparently expect sustained cash losses of about $5.25 over the next two weeks. The wholesale market isn’t encouraging either, as indicated by midday choice cutout falling $2.26 to $315.14 and select cutout dipping $1.29 to $308.55. The fact that the choice-select spread narrowed to just $6.59, which is near normal for this time of year, won’t impress bulls either, because it suggests the supply of choice grade animals and beef is not nearly as tight as it was a few weeks ago. One could certainly argue the narrow spread simply reflects much stronger grocer demand for lower-quality cuts than a few weeks ago, but that might also suggest they are more likely to pass the higher costs on to consumers than was routinely the case last year.
30-day outlook: History suggests the cash cattle market will post a significant seasonal rebound from the current decline. That partially reflects the strong history of cattle slaughter reaching annual lows in the February-March period. It would be easy to assume a February low in slaughter rates and beef production would correspond to a price peak. However, the traditional late winter/early spring recovery in supplies is almost surely exceeded by the usual seasonal surge in consumer demand as the grilling season looms. In particular, consumer demand for steaks almost surely balloons as temperatures warm and Lent ends. Thus, we suspect the market will reverse the recent downtrend at some point in early-to-mid-March.
90-day outlook: This week’s poor April cattle close, as well as the larger discounts built into the summer contracts, also imply little industry confidence in the spring-summer outlook despite the tight supply of fed cattle and beef. We tend to think those fears are overdone, especially if grocers continue featuring beef cuts, especially steaks, at attractive levels. If that indeed proves to be the case, it wouldn’t be at all surprising if the cattle market reverses to the upside in the not-too-distant future and makes fresh highs at some point. In fact, the cash market has posted fresh spring-summer highs in the May-August period in the past four years. Given the ongoing decline in the overall U.S. cattle population, and especially the increasing tightness of calf and feeder cattle numbers, we are very reluctant to rule out a mid-year surge to fresh highs. On the other hand, if grocers shift to a strategy of actively boosting retail steak prices, the cattle/beef outlook seems likely to turn negative.
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 should have all soymeal needs covered in the cash market through March. You are hand-to-mouth on corn-for-feed needs.