Hogs
Price action: Nearby hog futures slipped to end the week, whereas the deferred contracts posted moderate gains. April hogs lost 85 cents on the day to $87.675. That marked a weekly drop of $4.925.
5-day outlook: This week’s big futures losses certainly suggest more of the same will occur next week, but today’s wholesale action may indicate otherwise. Given the size of mid-week futures and wholesale market losses, traders were almost surely expecting a cash market downturn to end this week. That’s what the latest quote for the CME hog index implies. The exchange confirmed Tuesday’s official index quote $90.98, up 79 cents from Monday. Wednesday’s preliminary figure is another 24 cents higher at $91.22, but the latest USDA data indicate Thursday’s quote is going to fall 69 cents to $90.53.
However, after having plunged earlier in the week and dragging pork cutout down with them, primal pork belly values soared over $18.00 Friday morning and the other cuts also posted across-the-board gains. That boosted pork cutout $5.16 to $99.19 at midday. The surge will probably be diminished in afternoon trading, but the potential for further strength in the days and weeks ahead, will probably cause considerable concern on the part of bears. Indeed, this week’s hog slaughter is estimated at 2.536 million head, thereby marking a 41,000 head (1.6%) annual reduction. Given the sustained year-to-year declines experienced since late January, the numbers continue implying more of the same through winter. The potential reduction in supplies also suggests underlying cash and wholesale price support in the days and weeks ahead.
30-day outlook: The traditional early-year rally in the hog and pork complex tends to last into the mid-to-late February period, so the timing of this week’s seeming reversal looks entirely appropriate. Thus, it would be easy to assume the common pattern of sagging prices during March and possibly into early April will occur again this year. However, we have seen little evidence that grocers have departed from their pattern of featuring pork at attractive retail prices in place since last July. If those haven’t changed significantly, we tend to doubt the cash and wholesale markets will suffer a substantial or extended decline in the coming weeks. Nearby futures may be underpriced in such a scenario.
90-day outlook: Spring often brings a big surge in hog and pork prices, since the traditional surge in consumer grilling demand is routinely met by a big seasonal decline in market hog and pork supplies. The supply drop did occur once again last year, but high retail prices seemed to stifle spring 2024 consumer demand and kept a lid on cash prices. The subsequent strategy shift by grocers changed the market dynamic and apparently remains in place. As a result, we are much more inclined to expect a robust seasonal advance this spring. Whether the rise will justify summer futures trading between $100.00 and $102.50 remains to be seen, but we are guardedly optimistic on that score, especially with pork belly stocks beginning the year at their third lowest level of the past 10 years.
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: April live cattle futures rose 15 cents to $193.95 and near mid-range. For the week, April live cattle fell 30 cents. March feeder cattle futures rose $1.125 to $267.95, near mid-range and for the week up $1.30.
5-day outlook: The cattle futures markets ended a holiday-shortened week with modest gains and the bulls are hoping the markets next week will show stability if not some fresh price strength. This afternoon’s Cattle-on-Feed report will very likely help to drive price action in cattle futures early next week. A Reuters poll showed analysts expect USDA to show the Feb. 1 large feedlot inventory down 0.8% from year-ago. Placements are expected to be up 2.2% from last year and likely the key figure in the report. January marketings are expected to be up 2.1% from last year.Some light cash cattle trading occurred at around $200.00 in Nebraska on Wednesday. That apparently set the stage for active Thursday trading, with likely southern trade in the $199.00 area and $200.00 in the north; the average came in at $199.60.
For the cash cattle and futures markets to renew price strength, boxed beef values will have to stop their downturns. The noon report today showed Choice-grade boxed beef prices fell another 76 cents to $311.87, while Select dropped 90 cents to $304.08. Packers are slowing slaughter levels due to margins presently deep in the red. While retailer beef buying remains seasonally weak, today’s midday boxed beef movement was decent at 98 loads and suggests the lower beef prices may be improving grocer demand.
30-day outlook: The next few weeks could see more short-term weakness in cash cattle, boxed beef and cattle futures prices as many consumers will look to buy Easter hams. Despite recently lower beef production that suggests a seasonal low in cattle slaughter is coming soon, we are concerned higher beef prices at the meat counter will dent consumer demand.
90-day outlook: As the calendar turns to April and temperatures warm up, consumer beef demand will likely increase due to outdoor grilling. However, the macro-economic picture will also likely play a role in cattle prices and beef demand. Disruptive Trump administration domestic and trade policies have heretofore not had a major negative impact on the U.S. economy or the stock market. The coming few months will likely find consumers and cattle traders getting a better idea of new U.S. policies and their impacts on the overall health of the U.S. economy—which in turn will help determine consumer demand strength for beef at the grocery store. Still, recent history suggests at least moderate spring strength.
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.