Hogs
Price action: April lean hog futures settled 70 cents higher to $87.35 and closed near session highs, marking an impressive $3.675 gain on the week.
5-day outlook: Hogs finished the week on the weekly high, staging an impressive rebound from recent sharp selling pressure. April lean hog futures have essentially rallied back to the “scene of the crime” from the late February technical breakdown. Bulls struggled to break prices above that mark ahead of this week’s announcement from Mexico regarding their tariff response. Considering Mexico is a top importer of U.S. pork, how they respond to this week’s tariffs will be key in early week price action in hogs. With the impressive reversal from Tuesdays lows, April lean hogs have already retraced 50% of the losses seen since the Feb. 12 high. If Mexico opts not to put tariffs on imports of pork, the recent bounce could continue, but if they seek alternative suppliers, markets could quickly return to this week’s lows.
30-day outlook: Aside from recent tariff driven trade, the hog market remains keyed in on the cash market, specifically pork cutout. Cutout has been driving action in the CME lean hog index over the past few months for the most part. The CME lean hog index is down 2 cents to $90.18 as of March 5, while the preliminary calculation puts the index down another 28 cents to $89.90 tomorrow. That reflects recent weakness in pork cutout. Meanwhile, cutout climbed $4.22 to $100.71 at noon today, led by a more than $10 jump higher in bellies. Recently, cutout has struggled to maintain any push above $100, but strong movement at midsession today, at 175.07 loads, indicates strong demand underpinning today’s move.
90-day outlook: Pork cutout has sustained substantial spring drawdowns in three out of the last five years. Recent action in pork cutout and concerns over tariffs could continue that trend, but it ultimately comes down to what trading partners opt to do with pork imports. While domestic demand for pork remains quite strong, noted by major declines in cold storage, which is further bolstered by year-over-year reductions in hog supplies, a major downtick in exports could quickly flood the market with pork, undercutting cutout values and hog prices with it. The outlook over the coming quarter remains precarious, but the market continues to price in the worst case scenario, so if trading partners’ responses are less strict than thought, prices could quickly rebound.
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: April live cattle led the livestock complex higher Friday, leaping $4.00 to $200.275 at the close. That represented a weekly jump of $7.625. April feeder futures surged $3.725 to $278.15, which marked a weekly gain of $5.15.
5-day outlook: This week’s early-to-mid-week cash action didn’t seem terribly supportive as indicated by Thursday’s moderate fed cattle trading averaging $196.90. That represented a 75-cent drop from last week’s five-area average. And while wholesale beef prices, in the form of choice-grade cutout, look set to end the week over $314.00, the moderate advance wasn’t extraordinary. Thus, in light of today’s bullish futures breakout, we harbor strong suspicions beef packers threw in the towel on price negotiations and boosted bids. A harbinger of that was provided by a few head of Nebraska cattle that changed hands at $200.00 Thursday. This also bodes well for next week’s cash trading, which probably means futures will continue rallying as well, because today’s April futures surge smashed through resistance at the pivotal 40-day moving average and closed above the hugely important $200.00 level.
30-day outlook: Having cattle prices turn higher at this point probably presages much more of the same during the coming month and well into April. Again, history indicates the cash cattle market tends to reach a seasonal peak in late March or in April. Slaughter rates typically rise from late-winter lows through spring and into summer, which might easily undercut cattle and beef prices. But the increased supplies are heavily comprised of calf-fed animals (those placed as calves in the previous fall) which will only produce select-grade beef. Demand, particularly at the wholesale level, also accelerates around this time as grocers and consumers gear up for grilling season. Given the stable feedlot population and the overall cattle population nearing cyclical lows, prospects for seasonal gains seem high.
90-day outlook: The cash price of fed cattle traditionally tends to peak in late March or April, then work lower into summer, possibly into fall. However, prices have reached fresh summer highs in each of the past four years. We would be reluctant to declare that won’t happen again this year, especially in light of the low overall cattle population and the strong possibility that the cyclical low won’t be reached (officially) until next January. Our work suggests cattle prices tend to peak at the same time the population hits its cyclical nadir. This bodes well for the cash and wholesale markets. On the other hand, we still regard active grocer increases in their asking prices for retail beef as the biggest danger to the cattle/beef outlook. Such actions led to a two-year bear market after the last cyclical cattle market peak (October 2014).
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.