Hogs
Price action: Hog futures ended the week poorly despite cash and wholesale market firmness. Nearby February futures settled at $81.125, down $1.175 on the day and $1.425 on the week.
5-day outlook: History suggests the cash hog and wholesale pork markets will continue firming next week, since seasonal forces imply supplies will continue diminishing while demand improves. That has certainly been the case this week, with the CME Lean Hog Index having risen to $81.10 Tuesday and very likely to reach $81.19 for Wednesday and $81.28 on Thursday. Meanwhile, pork cutout rebounded $1.30 to $91.69 at noon today after having dipped to $90.39 yesterday. A big gain in pork belly values led the advance. USDA estimated this week’s hog slaughter at 2.627 million head, up 10,000 (0.4%) from year-ago. That contrasts with the persistent reductions seen through much of late 2024. That may have spurred selling today since it suggests larger supplies are coming.
30-day outlook: Seasonal forces suggest the current strength will persist into mid-to-late February. Hog supplies will likely continue slipping through winter and spring, while demand from grocers and consumers will probably remain robust. We believe grocers and processors will continue buying hams quite actively into March as they build inventories for planned Easter dinner entrees. A big reason for thinking the winter strength will be sustained stems from the later arrival of Easter this year (on April 20). We suspect an early Easter arrival tends to promote a shorter, sharper winter rally, whereas a late holiday gives the industry a longer time to build inventories, but they are under less pressure to build inventories in years such as this one.
90-day outlook: We still harbor some doubts about hog supplies moving back above year-ago levels by mid-winter, as was indicated by the December USDA Hogs & Pigs report. However, total slaughter over the past five weeks exceeded the year-ago total by 2.2%, thereby favoring bears, since that could diminish the usual seasonal reduction in hog and pork supplies through winter and early spring. That could be price negative. However, we think much depends upon the aggressiveness with which grocers price pork to consumers. If they maintain the minimal increases seen during the second half of 2024, that would likely favor robust demand and firm prices. However, if they boost prices in a manner similar to that seen in early 2024, the negative impact on consumer demand could greatly hamper the traditional spring rally.
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 should have all soymeal needs covered in the cash market through the end of February. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: Cattle and feeder futures traded mixed-to-lower on Friday. One exception was the nearby February live cattle contract, which rose 15 cents to $196.75. That represented a weekly drop of $2.025. Expiring January feeder futures inched up five cents to $273.50, while most-active March rallied 32.5 cents to $268.05. That marked a weekly decline of $1.35.
5-day outlook: This week’s futures action seemingly set the stage for fresh cattle futures weakness next week. The slippage, as well as the discounts versus cash prices already built into the markets reflect the industry’s short-term pessimism. We are somewhat inclined to agree, due to this week’s mixed cash market action. That is, while fed cattle in the north continued trading near last week’s average (between $204.00 and $205.00), trading in the south was stuck in the $200.00-$201.00 area. Bulls could point to continued wholesale strength, with choice cutout remaining over $333.00 at noon, while select cutout kept rising (reaching $321.45 at noon). That narrowed the choice-select spread to $12.37. This is confirming growing grocer resistance to choice beef prices at or near record highs for winter.
30-day outlook: We would actually regard a short-term setback in cattle and beef prices as healthy for the spring-summer outlook, since it would probably take some pressure off of packers and grocers and encourage them to continue processing and selling beef quite actively. We expect short-term weakness across the cattle and feeder sector, but don’t expect it to last longer than 2-3 weeks. As with hogs, cattle supplies and beef production are likely to move steadily lower into early March. The late arrival of Lent may also encourage short-term consumer demand for beef.
90-day outlook: Weekly cattle slaughter tends to turn higher in md-to-late March, which is one reason fed cattle prices have historically tended to post annual cash market highs around that time. Conversely, the strength of consumer demand can delay that top into spring and/or summer, as it did the past two years. Indeed, we still see vigorous consumer demand as a potential factor driving fed cattle prices to fresh records by late winter and/or early spring. But the sustained wholesale strength seen lately, as well as the sharp reduction in the choice-select spread, raise the possibility that grocers will throw in the towel on beef features by spring and aggressively raise retail beef prices. That represents a significant risk for the price outlook.
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 the end of February. You are hand-to-mouth on corn-for-feed needs.