Hogs
Price action: Hog futures ended the week on a firm note, with nearby December futures ending the day up 15 cents to $77.825. That represented a weekly rise of 17.5 cents.
5-day outlook: The December hog contract essentially ended the week unchanged, which hides the fact that the market suffered big early losses, then rebounded dramatically on Wednesday. But the underlying indication of firmness remains. The latest estimate of the hog index is $83.76, down 8 cents from Wednesday’s official figure. The biggest development of the week may have been the late-week advance in pork cutout values. That is, pork cutout proved quite stable in the $94.00-$95.00 range through the first half of October, but after turning higher Thursday, it added another $1.48 to $97.89 at midsession. This suggests the cash and wholesale markets will remain well supported next week. That implication was given extra credence by the weekly slaughter total at 2.613 million head, down 3,000 head (0.1%) from year-ago. The slaughter data still implies the USDA substantially overestimated hog supplies in its September Hogs & Pigs report.
30-day outlook: History strongly suggests the cash hog and wholesale pork markets will work generally lower from this point into the year-end holiday season. Somewhat surprisingly, the usual seasonal demand surge for hams as Thanksgiving looms generally does not translate into notable strength in the wholesale or cash markets. Tight ham stocks held in Cold Storage, as has been the case on recent USDA reports, seem likely to be confirmed in this afternoon’s report (see Evening Report for results), which would also lend background support to the complex. We expect relative firmness as opposed to the market’s history of seasonal weakness, especially if slaughter rates don’t surge above year-ago levels.
90-day outlook: The 10-year average for pork cutout illustrates the complex’s tendency toward seasonal weakness. The average for the second week of October is $91.39, with it generally declining until it reaches $78.68 in the first week of the new year. Given the modest discount built into December hog futures, as well as the February contract’s approximate $4.00 premium to it, we have considerable company in thinking the market will suffer fourth-quarter losses much smaller than those seen the past two years. We harbor some concerns the drop will prove larger than that implied by December futures but are reluctant to recommend active hedges in that contract due to the built-in discount.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soymeal needs covered in the cash market through November. You have all corn-for-feed needs covered in the cash market through October.
Cattle
Price action: December live cattle futures rose $1.15 to $187.325, nearer the daily high and for the week down 25 cents. November feeder cattle futures closed up $1.85 at $247.60, nearer the session high and on the week down $2.20.
5-day outlook: The live and feeder cattle futures markets today saw corrective rebounds and some perceived bargain hunting from significant selling pressure most of this week. Price strength today was also attributed to active cash cattle trading at steady to $1.00 higher Thursday, with the better bids in the southern Plains--in the $187.00-$188 .00 range. The latest USDA report indicates bulls won the day again yesterday, with active trading breaking out in the $187.00-$188 .00 range The five-area average for Thursday was $187.57. Some feedlot operators were still holding off for even higher prices. Fresh beef market fundamentals are also solid and support keeping a floor under cattle futures prices next week. Today’s noon report showed wholesale beef prices extend recent gains, with Choice up $1.33 to $320.59, while Select rose $1.23 to $294.75. Movement at midday was solid at 93 loads. The Choice-Select spread is presently $25.84. USDA this morning reported U.S. beef export sales of 14,100 MT for 2024, up 3% from the previous week but down 9% from the four-week average.
30-day outlook: Cattle market bears are likely anticipating a fall decline in cattle prices similar to what was seen last year at the same time. However, the recent increases in Choice and Select grades beef values do not point to cattle market weakness in the coming weeks. The Choice-Select spread has doubled since late September, implying a shortage of high-quality beef. Also, recent government cattle reports suggest still-tight supplies of market-ready animals in feedlots this fall. The latest Cattle on Feed report comes out later this afternoon. See Evening Report for the results.
90-day outlook: Economists surveyed by the Wall Street Journal are increasingly upbeat about the U.S. economy, forecasting steady GDP growth and moderating inflation in the coming months. The probability of a U.S. recession within the next 12 months has dropped, with expectations of cooling inflation and further interest rate cuts. All of this suggests greater consumer confidence and more spending power. That’s a bullish market fundamental for cattle and beef prices into the end of year and beyond.
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 covered in the cash market through November. You have all corn-for-feed needs covered in the cash market through October.