Hogs
Price action: Hog futures continued their recent surge, with the nearby December contract posting a fresh contract high before setting back. It ended Friday at $84.075, up 27.5 cents on the day and $4.40 on the week.
5-day outlook: The ongoing advance in hog and pork values shows little sign of slowing. The CME confirmed Wednesday’s preliminary quote for the hog index at $87.93, up $1.15 from Tuesday’s figure. Thursday’s preliminary figure rose another 63 cents to $88.56. That’s small by the standards of the previous two numbers, but it’s larger than almost every move up or down seen over the past few months. Meanwhile, after having climbed $1.54 to $103.15 Thursday, pork cutout followed with a 31-cent rise to $103.46 this morning. Again, this likely reflects robust consumer pork demand, as well as surprisingly small hog slaughter contrary to the supply surge implied by the September USDA Hogs & Pigs report. That was reflected again this week, with the USDA estimating the weekly kill total at 2.653 million head, down 12,000 (0.5%) from last year. These numbers suggest the rally will continue next week.
30-day outlook: As pointed out in the past, it’s common for the cash hog and wholesale markets to decline from mid-October through the balance of the year, with a history of some firmness in mid-December. There have been some years such as 2020, when the spring Covid shutdowns disrupted markets through the end of the year, and 2017, when the market proved surprisingly strong through much of the year. The latter included a strong advance during October. This is the reason the sustained strength at this time is so surprising. But bulls, and farmers should be prepared for a return of seasonal weakness later in the month, due largely to anticipation of seasonal weakness in pork demand and a resulting slide in cash prices.
90-day outlook: Ham prices are likely to find considerable support over the next 6-7 weeks as firms in the supply chain supply product to grocers and consumers for planned holiday meals. That ham strength tends to end in mid-December when grocers have met all their needs for features over Christmas and New Year’s Day. However, one potentially supportive factor was the ending-September pork belly stocks figure around 17 million pounds. If that total continues sliding or doesn’t increase significantly by the end of the year, historically, such low year-end belly stocks have presaged a shortage of frozen bellies the following summer, which has tended to amplify the usual spring-summer hog rally.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: You have 50% of fourth-quarter production hedged in December $84.00 put options at $2.075 and 50% of first-quarter production hedged in February $84.00 puts at $3.35.
Feed needs: You have all of fourth quarter and 25% of first quarter 2025 soymeal needs in the cash market. You should also have all corn-for-feed needs covered in the cash market through November.
Cattle
Price action: December live cattle futures continued this week’s slide, losing 37.5 cents to $185.925 on the day and $3.225 on the week. Conversely, November feeder futures rebounded $1.50 to $246.875 at settlement. That close marked a weekly drop of $1.70.
5-day outlook: Bears likely expected to dominate late week futures trading in nearby December cattle futures after having triggered big CME losses Tuesday and Wednesday. Significant Iowa/southern Minnesota trading at $189.00, down about $1.00 from last week, also seemed a harbinger of falling prices. Sustained wholesale weakness pointed in that direction as well. However, the cash market firmed on Wednesday and Thursday, with the weekly five-area average to be reported Monday looking set to come in only slightly below last week’s result. We tend to think cash prices will slide for a few weeks, but we don’t see December futures falling all that substantially in such circumstances. However, a big cash market dop in the days ahead could spark a sharper sell-off. The fact that bears had little luck in sustaining intraday tests of major technical support also suggest a comparatively firm short-term outlook.
30-day outlook: It isn’t terribly uncommon for the cattle and beef complex to weaken in November and December, since the retail industry focuses heavily upon hams and turkeys at this time. Thus, a sustained slide can’t be ruled out. This week’s wholesale losses also argue for late-year weakness. But until the sector sees significant signs of weakening consumer demand for beef and/or news of surging retail beef prices, the November cattle price outlook doesn’t seem all that concerning. As for futures, discounts already built into the nearby contracts may make it hard for bears to sustain fresh attempts to the downside.
90-day outlook: We see little reason to expect a sizeable increase in fed cattle supplies during the coming months. Indeed, the January USDA Cattle report seems likely to state the U.S. cattle population at its lowest levels since the early 1960s. And while that seems likely to represent a cyclical low, the industry’s efforts to rebuild herds will require the retention of increasing numbers of heifers for the breeding herd, thereby further tightening the cyclical low in the supply of calves and yearlings available to the feedlot industry. The fact that the choice versus select beef price spread soared to over $32.00 at noon Friday, despite record-high steer weights, reflects the shortage of high-quality beef. We expect any short-term weakness in cattle and feeder prices to be reversed in the first quarter of 2025.
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 of fourth quarter and 25% of first quarter 2025 soymeal needs in the cash market. You should also have all corn-for-feed needs covered in the cash market through November.