Hogs
Price action: A coming setback in the hog index undercut hog futures to end the week. Nearby October futures fell $1.20 to end the week at $79.50. That represented a weekly drop of $2.725.
5-day outlook: The CME confirmed Wednesday’s quote for the hog index at $86.43, up 16 cents from Tuesday. However, in contrast to expectations for sustained gains, USDA data indicates Thursday’s official quote will decline 19 cents to $86.24 when published next Monday. On the other hand, pork cutout rebounded $1.27 to $96.14 at midsession today, implying underlying demand from farther up the marketing chain remains solid. Of course, bulls are fighting against the usual seasonal increase in hog supplies, although this week’s slaughter total was greatly reduced by the Labor Day holiday. Still, the preliminary total of 2.327 million head topped the year-ago result by 82,000 head (3.7%). Current conditions suggest the cash and wholesale markets will remain firm next week. That could pull discounted futures higher as well.
30-day outlook: It isn’t terribly uncommon for the cash hog market to rise somewhat during September. One might argue that the strength seen through early summer, as well as the limited nature of the August decline, will open the door to larger September losses. But we are inclined to think the strong demand from grocers and consumers that have supported the market will persist during the days and weeks ahead. That might power a significant cash rally, which in turn would tend to boost futures.
90-day outlook: Ultimately, the seasonal increase in hog and pork supplies during the second half of the year routinely pulls the hog and pork complex lower into the end of the year. Moreover, consumer demand for most pork cuts tends to decline during fall, with the only significant exception being strong demand for hams in preparation for the year-end holidays. That buying can provide considerable underlying support. The likely key to the fourth-quarter outlook is how well the demand seen recently holds up in the coming weeks and months. We are cautiously optimistic on that score, thinking grocers will refrain from boosting retail pork prices as they did in fall 2022 and 2023, which resulted in substantial cash and futures market losses at those times.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through August.
Cattle
Price action: Falling cash prices undercut the cattle and feeder complex again Friday. October live cattle futures tumbled $2.075 to $175.175, while most-active October feeders plummeted $3.625 to $230.95. Those closes represent weekly losses of $3.425 and $6.80, respectively.
5-day outlook: Cash market weakness, particularly in Nebraska, sent the cattle and feeder complex sharply lower again Friday. The Nebraska market, which has routinely traded $2.00-$3.00 or even more above the Southern Plains markets this year, fell sharply again Thursday, with the average price at $180.81 falling below the TX-OK-NM and KS markets averaging $181.00. Iowa-southern Minnesota cattle averaged $181.86, thereby providing some relief from the pressure. The breakdown may reflect an excess of market-ready cattle, since beef demand still seems solid. That’s best indicated by choice cutout dipping $1.92 at noon today but remaining well above $300.00 at $309.59. We tend to assume the large marketings powering the recent six-week and approximate $14.00 breakdown will have cleaned up supplies and opened the door to a short-term rebound, but that certainly isn’t assured.
30-day outlook: Grocers have apparently refrained from substantially increasing retail beef prices this year, featuring beef at attractive prices and/or using it as a loss-leader in order to generate store traffic. We don’t see that changing, so we suspect wholesale market stability at relatively elevated prices will persist. If so, producers are likely to become increasingly resistant to low-ball packer bids. Producer marketings are not current, but the disparity between current levels and those indicated by last year’s weights and the five-year average has declined significantly. The market ignored that factor through spring and early summer. If that’s now the dominant force in the market, further pressure is likely. But we are skeptical on that point.
90-day outlook: Some traders may believe a possible recession could undermine the cattle and beef outlook this fall, thinking reduced weak consumer demand will undercut the sector. We would argue against such ideas, citing long-term indications that consumer demand for beef may actually improve during recessionary times. We believe consumers do cut back on restaurant and fast-food visits during such periods, but they then spend that money in the grocery store, where they get more meat for their dollar. Thus, given the ongoing contractionary phase of the cattle cycle and the increased scarcity of heifers available to feedlots as ranchers start rebuilding herds, we expect extremely tight cattle supplies and sustained demand strength to support the market into at least spring of 2025.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through August.