Hogs
Price action: Hog futures closed mostly lower in the wake of Thursday’s USDA Hogs & Pigs report. Nearby October futures inched up 2.5 cents to $82.05, while most-active December fell 55 cents to $73.375.
5-day outlook: The Sept. 26 USDA Hogs & Pigs report implied fourth-quarter hog slaughter will run about 3.5% over year-ago levels, which topped industry expectations for approximate 1.0% gains, thereby increasing the potential for seasonal price weakness during the coming weeks. However, bears couldn’t force a sustained futures breakdown in the wake of today’s lower opening for the nearby contracts. From a purely pragmatic standpoint, that seems to bode well for short-term prices. The muted bearish reaction may also have reflected quick trader skepticism after last week’s slaughter came in about 1.5% under year-ago and this week’s expectations for the kill were also comparatively low. After the close the USDA estimated this week’s slaughter total at 2.569 million head, up 63,000 head (2.5%) from last week, but 48,000 head (1.8%) below year-ago. Given those developments, as well as the wholesale strength posted Thursday and again this morning, when pork cutout surged $1.19 to $95.83, along with the historical tendency for wholesale strength in early autumn, these factors seem to favor sustained futures firmness next week.
30-day outlook: The cash hog and wholesale pork markets have proven unable to sustain seasonal gains that can occur at this time of year. On the other hand, the monthly USDA Cold Storage report published Thursday afternoon indicated domestic pork stocks increased marginally during August, whereas history and the consistent production increases seen last month suggested a substantial rise in those stockpiles was to be expected. This implies consumer pork demand remains robust, which in turn seems likely to translate into firm cash and wholesale prices through mid-October. History suggests the cash and wholesale market become increasingly vulnerable to seasonal weakness during the second half of the month.
90-day outlook: December hog futures are trading well above the cash market lows posted late last year, which indicates underlying industry optimism about the late-year outlook. The muted bearish reaction to the increased supplies implied by the hog report largely confirms this inference. And while frozen ham and whole turkey stockpiles posted in late August imply relatively low totals, they largely matched those seen at the same time last year. That suggests little extraordinary support is likely to arise from tight supplies during the year-end holiday season. On the other hand, if conditions don’t live up to the supportive assumptions built into December futures, the hog and pork complex could prove vulnerable to sizeable losses later this year.
What to do: Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soymeal needs.
Cattle
Price action: December live cattle futures fell 35 cents to $184.475 but for the week gained $1.275. November feeder cattle futures rose 72 1/2 cents to $245.70 and on the week were up $3.885. Both markets today hit nearly two-month highs early on.
5-day outlook: Live and feeder cattle futures bulls had a very good week. The near-term chart postures for both markets have markedly improved the past couple weeks, which suggest there will be some more technical buying interest from the speculators next week.
Cash cattle trading broke loose Thursday, with the USDA reporting active trading taking place at $186.10 over the five direct-market area. The four-day average cash cattle price rose to $186.09, which compares to the Monday-Thursday average for last week at $182.79 and the weekly average at $184.01. The noon report today showed wholesale boxed beef prices mixed, with Choice grade up 50 cents to $296.87, while Select fell 11 cents to $282.26. Movement at midday was decent at 72 loads.
30-day outlook: USDA’s cold storage report Thursday afternoon showed beef stocks declined contra-seasonally during August, which suggests beef demand remains solid as autumn is just under way. Still, boxed beef cutout values are struggling to stabilize and prices will probably have to improve in the coming weeks to keep the cash cattle and futures markets supported.
90-day outlook: Recent weekly cattle slaughter totals show reductions from the past two years, indicating the cyclical shortage of fed cattle is supporting firmer cattle prices. Recent upbeat U.S. economic news (lower interest rates and lower inflation) and rallies in the U.S. stock indexes also point to upbeat consumer attitudes which suggest better consumer demand for beef in the coming months. Grocers are also keeping retail beef prices close to those seen last year, which is supporting the good consumer demand.
What to do: Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soymeal needs.