Live Cattle, Lean Hog Futures Fade as Overall Production Levels Lag
Closeup of cows eating in barn by dusanpetkovic via iStock
October live cattle futures (LEV26) on Friday rose $0.35 to $225.275. For the week, they were down $1.975. September feeder cattle futures (GFU26) rose $3.65 to $345.225, near the daily high, and for the week up $3.125. The cattle futures markets in late Friday trading saw short covering to allow prices to finish unchanged, after both markets earlier saw some follow-through technical selling from Thursday’s solid losses. October live cattle futures late last week saw a price uptrend on the daily chart negated.
The USDA at midday Friday reported active cash cattle trading, with steers averaging $235.22 and heifers $235.07. The agency last Monday reported average cash cattle trading the week prior at $233.06. Cash cattle and wholesale beef fundamentals have recently supported futures. However, both cash and boxed beef prices, along with overall production, continue to lag year-ago levels.
High heat across the Plains states has pressured the U.S. cattle herd, as persistent heat has reduced cattle weights while also disrupting logistics by limiting loading, shipping, and sales activity. Fed cattle supplies are expected to remain tight for the foreseeable future, though several factors such as demand seasonality and packer economics could limit the potential for new highs. Packer margins have improved but remain in the red.
USDA’s recent cattle data suggest U.S. herd-rebuilding may finally be starting, but progress remains slow amid still-elevated heifer slaughter rates. On the supply side, historically tight fed cattle supplies are still working in favor of the cash and futures markets bulls.
The stock indexes hitting record highs are good for upbeat consumer attitudes that could support better consumer demand for beef at the meat counter. However, retail gasoline prices are still elevated, and if such remains the case, demand for beef could be crimped with gasoline prices around $4 a gallon at the pumps.
Lean Hog Futures Trending Lower
October lean hog futures (HEV26) on Friday rose $0.50 to $82.225 and hit a four-week low early on. For the week, October hogs were down $2.625. The hog futures market on Friday paused amid some mild short covering, but the bulls had a dreadful week last week. Technicals remain firmly bearish as prices are in a steep downtrend on the daily chart.
Declining cash hog prices also favor the futures bears. The latest CME lean hog index is down $0.2929 to $96.66. Today’s projected CME index price is down $0.36 at $96.30. The national direct five-day rolling average cash hog price quote for Friday was $99.37. The weakening CME lean hog index suggests a seasonal top in futures as summer demand softens and supplies typically build into fall. Lean hog futures have extended late-July weakness into early August, pressured by softer cash hog prices and mixed-to-weaker wholesale pork cutout values.
Seasonal summer demand patterns, elevated hog weights earlier in the season, and cautious packer margins continue to weigh on lean hog futures traders and hog producer sentiment. Heat across the Midwest could eventually slow weight gains and tighten supplies, but at present it appears weaker cash hog and fresh pork fundamentals may persist into the fall — especially with the cattle markets losing their bullish momentum.
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On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
