Price action: Lean hog futures fell today in followthrough profit-taking after Wednesday and Thursday's surge. Futures closed near their lows for the day. The lead May contract fell $1.97 1/2 while the summer contracts declined $1.02 1/2 to $1.37 1/2. The October through February contracts finished 52 1/2 cents lower to 15 cents higher. Futures finished slightly lower for the week.
5-day outlook: Weakening wholesale pork prices have pulled packer cutting margins into the red, making them less eager to bid prices higher. Some packers have trimmed hours to reduce losses, making it unlikely cash hog prices will firm. Futures continue to hold a premium to the cash hog index, which has been under pressure of late. The trade may attempt to narrow that premium next week in the face of steady hog bids.
30-day outlook: Wholesale pork prices have flashed signs of reaching a "value" level relative to beef, but gains in prices are quickly met with resistance. This suggests it will be very difficult for hogs to rally much higher. The normal season trend is for supplies to rise going through May, which normally presses prices lower. While there are still plenty of unknowns concerning how much hog supplies have been trimmed due to the porcine epidemic diarrhea virus (PEDV), the seasonal trend suggests prices will face pressure through the spring.
90-day outlook: Pork prices will need additional help from rising beef prices to restart the upswing in prices. However, the market does not have as much pork in storage as previously thought, which means it will have to depend more heavily on market-ready supplies to meet needs. With supplies curtailed due to PEDV, the normal season downswing in summer hog numbers may be accentuated, forcing cash prices higher during summer.
Hedgers: 50% of expected 2nd-qtr. hog marketings and 50% of expected 3rd-qtr. Hog marketing are covered in $126.00 June lean hog put options for $3.90.
Feed needs: Carry all corn-for-feed and meal risk in the cash market for now.
Price action: Cattle futures enjoyed gains today and ended 60 to 92 1/2 cents higher for the day. Feeder cattle futures ended 57 1/2 to $1.10 higher for the day, notching new contract highs. The market posted moderate to sharp gains for the week.
5-day outlook: While the Cattle on Feed Report is deemed positive (see "Evening Report" for more), traders could view today's gains as a signal the report is already priced into the market. As a result, a "sell the fact" reaction is possible on Monday. Cash cattle trade was picking up this afternoon at $145, which is down a dollar from last week. But June live cattle will soon be the lead-month contract and ended the week at around a $8 discount to this week's cash market.
30-day outlook: Traders are keeping a close eye on the beef market, as it signals prices have found value ahead of grilling season. Seasonal May "Beef Month" features will provide the first signal as to consumers' acceptance of lofty beef prices.
90-day outlook: If demand is solid this summer, it would help to support futures, as supplies will remain tight. Today's Cattle on Feed Report signals supplies will remain tight well into 2015. If drought continues to intensify on the Southern Plains, this trend could become even more pronounced.
Hedgers: Carry all risk in the cash market for now.
Feed needs: Carry all corn-for-feed and meal risk in the cash market for now, but be prepared to extend coverage on a price break.
Cattle on Feed Report: Friendly Compared to Expectations
Crops Analysis (VIP) -- April 25, 2014