Hogs
Price action: Hog futures remained relatively firm in apparent anticipation of improved demand during the days and weeks ahead. Nearby August futures did end Friday having slipped 30 cents to $93.475. That marked a weekly gain of $1.625. Most deferred contracts posted modest gains.
5-day outlook: Despite the monthly USDA Cold Storage report indicating demand for U.S. pork remained weak during June, the cash hog and wholesale pork markets continued exhibiting strength Friday morning. For example, the CME confirmed its hog index had risen 62 cents to $91.39 Wednesday. USDA data implied the index for Thursday will rise another 46 cents to $91.85 when it’s officially quoted next Monday. And while pork cutout set back from the strong gain posted yesterday morning, it ended the day $1.19 higher at $105.95, then rose another 27 cents to $106.22 at noon today. The underlying strength looks likely to persist through next week as well.
One potentially negative factor is the current supply of hogs. Slaughter averaged about 1.5% over year-ago in mid-July, and this week’s total at 2.436 million head topped the year-prior figure by 38,000 head (1.6%), essentially matching that rate. Slaughter should remain seasonally low for another two weeks, then begin climbing rapidly through late August and September before ultimately rising to an annual high just before Christmas.
30-day outlook: The expected surge in hog supplies will probably end the recent price advance in early-to-mid-August, with the latest quotes for August futures likely representing expected prices below the cash market highs expected for the next week or two. History suggests the August decline will last into early September, with the drop sometimes continuing through that month, with other years reflecting a post-Labor Day rebound. We are cautiously optimistic on that score.
90-day outlook: A big reason for thinking the fall market could perform relatively well is the price pattern implied by October and December futures versus the cash prices seen in fall-winter 2023. For example, the two contracts ended the week around $78.00 and $70.00, respectively, whereas their 2023 counterparts went off the board at $82.10 and $67.92. Thus, while October futures are seen falling about $4.00 below year-ago by their mid-October expiration, December futures are priced about $2.00 above year-ago. We don’t disagree with such ideas, due in part to grocers having actively raised retail pork prices in the third quarters of 2022 and 2023. Having them feature pork more aggressively this fall could give the hog and pork complex a significant boost.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through August.
Cattle
Price action: August live cattle fell 32 1/2 cents to $188.575, nearer the session low after hitting hit a nine-month high early on. For the week August live cattle rose a solid $5.475. August feeder cattle futures rose $1.075 to $259.70, near mid-range and hit a three-week high. For the week, August feeders gained $4.10.
5-day outlook: The good weekly price gains in August live and feeder cattle futures contracts set the stage for more chart-based buying from the speculators early next week, as the charts this week did turn more bullish for both markets. Cash market fundamentals remain overall friendly for live cattle and feeders. After light cash trade at steady levels earlier this week, cash activity picked up Thursday as prices rose around $2.00 in the southern Plains on Thursday. Bids remained very light in the northern market, where supplies are tighter. The noon report today showed Choice-grade boxed beef cutout value up $2.01 to $314.47, while Select rose $2.99 to $298.10. Movement at midday was 47 loads. The Choice-Select spread is currently $16.37. World Weather Inc. today said heat in the western and northern Plains “will become extreme next week, which will notably raise livestock stress.”
30-day outlook: Consumer and retailer demand for beef just past mid-summer remains surprisingly strong, suggesting cash and futures prices can continue to move up the next few weeks. Today’s tame inflation numbers coming from the personal income and spending report’s PCE price indexes were good news for consumers. The Federal Reserve still appears to be on track to lower U.S. interest rates in September. Also, despite this week’s sell-off in the stock market, U.S. stock indexes are still not too far below their recert record highs, suggesting still-upbeat consumer confidence and therefore better demand for beef at the meat counter.
90-day outlook: The July USDA Cattle-on-Feed report showed June feedlot marketings 8.7% below one year ago, suggesting packer industry cutbacks in slaughter levels partially due to tight cattle supplies. The loss of two June workdays versus June 2023 also accounted for the big year-to-year reduction. If the trend of lower kills continues into the fall, cattle supplies in feedlots could bulge, giving the packers the upper hand in their bidding process. Futures markets are suggesting this problem will develop, with 2024 live cattle futures contracts trading at significant discounts to the cash market at present.
What to do: Get current with feed advice. 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 corn-for-feed and soymeal needs covered in the cash market through August.