Hogs
Price action: Hog futures proved unable to sustain their early rebound from Thursday’s big breakdown, with nearby April futures sliding 70 cents to $83.675 to end the week. That marked a weekly drop of $4.00.
5-day outlook: Thursday’s news that the Trump Administration will implement its promised tariffs on imported Mexican, Canadian and Chinese goods next week triggered the big breakdown in hog futures, because those three countries represent 3 of the top 5 importers of U.S. pork, with Mexico being number one. This obviously sparked fears about retaliatory tariffs on, or at least reduced purchases of, U.S. pork. Thus, the slide continued today despite sustained cash and wholesale firmness. The hog index is seen following Wednesday’s slight drop to $93.38 with a six-cent rise to $93.44. Moreover, pork cutout bounced to $100.96 Thursday before slipping to $99.02 at midsession today. We suspect these developments, along with this week’s annualized drop of 0.5% in hog slaughter (marking the sixth straight year-to-year drop) will prove supportive of hog futures next week. That could change if/when the tariffed countries explicitly respond via tariffs or restrictions on U.S. pork.
30-day outlook: Historical hog and pork price patterns for March and early April are variable. Prior to the past 10 years or so, a seasonal decline was common. But late-winter advances haven’t been all that rare more recently. Indeed, given the persistent strength exhibited by the hog and pork complex since last summer, as well as the supportive results on the Feb. 26 USDA Cold Storage Report, firm short-term prospects seemed well justified. That might easily change if a tariff war heats up. Conversely, the absence of tariffs and/or restrictions on U.S. pork would probably give the market significant upside potential.
90-day outlook: Aside from the surprisingly small January increase in domestic pork stocks, the most important aspect of the Cold Storage report was the resulting major declines (53 million and 90 million pounds) below year-ago and five-year average levels, respectively. If the persistent trend of year-to-year reductions in hog supplies, in place since late last summer, continues into spring, this implies a significant shortage of domestic hog and pork supplies during the grilling season. Of course, having U.S. pork caught in a tariff war could keep a great deal of meat at home and weigh on the market. But in its absence the hog and pork complex could enjoy significant upside potential.
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: You have all corn-for-feed needs covered in the cash market through March. You have all soymeal needs covered in the cash market through April.
Cattle
Price action: The February live cattle contract expired at noon Friday, settling at $197.725, down $1.675 on the day. April live cattle tumbled $3.475 to close at $192.65. That represented a weekly drop of $1.30. Feeder futures also suffered sizeable losses, with nearby March futures declining $1.475 to $274.975, which marked a $7.025 advance from last Friday.
5-day outlook: Cash and wholesale news seemed to undercut the cattle complex Friday. Traders likely took reports that modest Iowa-southern Minnesota trading had taken place at $198.00 Thursday as signaling another drop in the cash price of fed cattle this week. That was reinforced by yesterday’s wholesale slide, which carried choice beef cutout down $1.72 to $311.18. The futures breakdown will almost surely amplify the cash weakness seen earlier in the week. This also bodes rather ill for next week’s early trade, although choice beef prices firmed this morning. A followthrough futures drop next week would also violate major technical support, thereby potentially exacerbating the drop.
30-day outlook: Bears seem to be anticipating a substantial decline during March, despite the fact that cattle slaughter and beef production will probably be very near annual lows. They may expect rising retail beef prices to undercut consumer demand, which would probably exaggerate the usual demand slippage during Lent; next Wednesday is Ash Wednesday. The extremely late arrival of Easter on April 20 may also be seen as signaling a commensurately late start to the grilling season. We are skeptical of such ideas, since the cattle market’s history of March-April strength doesn’t appear to be greatly affected by the timing of Lent and Easter. Thus, we tend to view the current futures breakdown and the resulting discounts as being overdone.
90-day outlook: Not only has the cattle market historically tended to be strong during the March-April period, fed cattle prices have also demonstrated a tendency to reach even higher levels during summer of the past three years. This has apparently reflected vigorous demand for beef, and especially steaks, during those years. There is certainly a danger the early-2025 surge in wholesale beef prices will cause grocers to become more aggressive in raising the prices they charge consumers. But we would point out that they consistently kept a lid on steak prices throughout 2024, which translated into strong consumer demand all year. Surging steak costs to consumers could indeed justify the pessimism built into nearby live cattle futures, but most other scenarios seem more promising.
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 March. You have all soymeal needs covered in the cash market through April.