Hogs
Price action: December lean hog futures sunk 70 cents to $82.40 and settled nearer session lows.
5-day outlook: December lean hog futures underwent modest selling pressure while deferred contracts posted modest gains. Some selling pressure was warranted given recent strong gains. Pork cutout continues to make new lows, which is likely to exacerbate the bearish seasonal, which historically weighs heavily on February futures beginning soon. The CME lean hog index is down another 56 cents to $85.90 as of Nov. 25 while the preliminary calculation puts the index down another 39 cents to $85.51 tomorrow. Historically the index will fall between now and the December contract’s expiration in mid-December, but this year has shown a significant amount of contra-seasonal strength. Still, weaker cutout values, as pork cutout was down $1.90 to $89.25 at midsession, are likely to make packers hesitant to pay up for cash hogs.
30-day outlook: Pork production is poised to peak in the next month, which historically falls close to a seasonal bottom in the cash market. Traders are anticipating the cash market will fall just below the prior low in October, but the jury is still up on that score. Pork demand has been quite strong, as noted in this week’s USDA Cold Storage report, which showed a drawdown of nearly double the five-year average in pork stocks in October. Lower prices at the meat counter are likely to do little more than encourage additional buying during a season that typically sees pork demand fall, which could support hog futures in the interim.
90-day outlook: While nearby December futures have faltered, late winter and early spring futures have continued to show impressive strength. Traders clearly believe that the recent uptick in pork demand is here to stay. Elevated costs for beef due to the New World Screwworm (NWS) in Mexico limiting feeder cattle imports are likely to draw consumers to pork as well. Grocers continued featuring of pork and the comparative tightness of hog supplies are likely to bode well for hog prices in the long-term outlook.
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 soymeal needs in the cash market through the third week of January. You should also have all corn-for-feed needs covered in the cash market through mid-December.
Cattle
Price action: February live cattle futures rose 90 cents to $188.60, nearer the daily high and closing at a four-week high close. January feeder cattle futures gained 67 1/2 cents to $258.775, near mid-range and hit a 4.5-month high early on.
5-day outlook: The feeder cattle market this week continues to lead price action in the cattle futures markets. Look for more of the same next week, and with the firmly bullish near-term technical posture in feeders more price upside is likely. However, January feeders have moved into solidly overbought territory on a short-term basis, which suggests a significant downside price correction is possible at any time.
Cash cattle negotiations have been slow to develop this week, though most cash sources expect the bulk of this week’s activity to be completed today, ahead of Thursday’s Thanksgiving holiday. USDA reported today that as of Tuesday, light sales of 1,134 head so far this week in the five areas, with an average price of $187.00.
30-day outlook: Today’s noon report showed wholesale boxed beef values up a bit, with Choice grade gaining 49 cents to $312.06, while Select rose 29 cents to $275.78. Movement at midday was decent at 86 loads. Importantly for the coming weeks, the Choice-Select spread is currently a wide $36.28. The wide spread between Choice and Select grades of beef is comparable to the spread’s record highs from June 2021. Such implies a significant shortage of high-quality beef animals and suggests cash cattle market strength in the coming weeks and possibly beyond. In early 2025 the U.S. cattle population is expected to see a cyclical low.
90-day outlook: The New World Screwworm (NWS) outbreak in Mexico continues to impact the U.S. cattle markets. There is trader uncertainty regarding how long feeder cattle imports will be suspended. Mexico accounts for around 5% of feeder cattle placements in the U.S. With the U.S. cattle herd at cyclical lows, any small loss of supply can have lasting impacts on the cattle markets. While live cattle futures have so far shown little reaction to the NWS news, any extension of the current two-week import ban from Mexico could provide extended price support to the cattle futures markets in the months ahead.
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 soymeal needs in the cash market through the third week of January. You should also have all corn-for-feed needs covered in the cash market through mid-December.