Hogs
Price action: Expiring July lean hog futures rose 52.5 cents to $89.75, while most-active August edged up 5 cents to $89.825.
5-Day Outlook: Hog futures gave up most of moderate early gains at today’s close, likely due to traders evening up positions ahead of Independence Day. And while some traders will probably keep an eye on the markets Friday, we expect a much larger percentage to make it a four-day holiday weekend. The most interesting aspect of today’s trading was the July and August contracts trading near par with one another and with the hog index. That is, despite the cash market’s flat-to-weak showing in recent weeks, traders apparently expect cash quotes to firm modestly between now and the July contract’s expiration on Monday, July 15. The latest official quote for the index is $89.31 for Monday, up 14 cents from previous. Tuesday’s preliminary quote rose another 14 cents to $89.45. The nearby futures’ firmness may represent ideas consumer demand will remain weak, whereas early-to-mid-July pork production is likely to be the smallest of the year. We see little reason to expect a divergence from the May-June pattern in the days ahead.
30-Day Outlook: Traders seemingly expect much more of the same through early August as well (August futures expire on Wednesday, Aug. 14). That’s rather surprising given the market’s history of moderately increasing hog slaughter and pork production during late July, as well as their tendency to surge after the first week of August. Historically, the hog/pork markets tend to hold up better in mid-to-late summer if pork belly stocks are low. The latest Cold Storage Report put those at 71.4 million pounds as of May 31. That’s down about 11 million pounds from last year, but up about 10 million from the 10-year average. That may translate into modest support for hog and pork cutout values through Labor Day.
90-Day Outlook: The cash hog market typically turns sharply lower in mid-to-late August. The drop sometimes ends around Labor Day, with the subsequent rebound extending through much of September. But the larger seasonal decline usually continues through Christmas. That reflects seasonally reduced consumer demand after Labor Day, as well as the tendency for hog slaughter to work higher into mid-December. We see little reason to expect a significant divergence from the historical pattern. October and December futures are priced on a rough par with the cash quotes seen at those times last year. Hog slaughter might deviate from the projected 1% annual increases implied by the June Hogs & Pigs report, and/or grocers may cut retail pork prices and spur consumer demand. Otherwise, there seems to be little reason to expect the hog and pork complex to outperform bearish expectations.
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 July.
Cattle
Price action: August live cattle futures rose 82 1/2 cents to $185.925 and nearer the daily high. August feeder cattle gained $2.275 to $263.375, nearer the session high and hit a five-week high.
5-day outlook: The cattle futures markets continue to be firmly supported by overall bullish cash market fundamentals, which should continue to keep futures prices at their present elevated levels, or higher, in the near term. Cash cattle prices have hit record highs the past three weeks. As of noon today more packer bids were surfacing, though they are still well below present asking prices. If packers get aggressive with bids, feedlots will move cattle. Otherwise, a Friday cash trade is likely. There was minimal cash trading Tuesday, with 100 head traded at $195.00 in Nebraska, whiled 134 head sold at $189.00 in the Texas, Oklahoma, New Mexico area. Today’s noon report showed wholesale boxed beef cutout values slipped, with Choice grade down 70 cents to $329.69, while Select grade dipped 12 cents to $306.36, taking the Choice/Select spread to $23.33. Movement at midday was 44 loads.
30-day outlook: July typically finds consumer demand for beef tapering off a bit after the Independence Day holiday. However, recently good boxed-beef movement suggests consumer demand for beef is remaining strong. The wholesale price rise still leaves cutout values well below the highs of recent years. It appears retailers are maintaining retail beef prices near those posted during spring. The wholesale price strength is also prompting packers to continue operating actively amid margins remaining slightly in the black. Still, the discounts cattle futures hold to the cash market suggest traders are expecting a downturn in cash cattle prices in the coming weeks.
90-day outlook: The S&P 500 and Nasdaq stock indexes today hit record highs. The more dovish tone on monetary policy from Fed Chairman Powell speaking in Portugal Tuesday suggests the Fed will be able to cut U.S. interest rates in the coming months. These combined factors suggest American consumer confidence remains robust, which can be extrapolated into continued good demand for beef at the meat counter in the coming months.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Get current with feed advice. 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 July.