Hogs
Price action: Lean hog futures saw volatile trade today. Futures plunged on the open, which spurred bargain buying that helped nearby futures end with gains of 2 1/2 to 60 cents in fall- and winter-month contracts, with farther deferred months mixed. Lean hogs ended with moderate gains for the week.
5-day outlook: While the downside for lean hog futures will remain limited by the steep discount nearby contracts hold to the cash hog index, the market’s upside will also be limited by seasonally expanding supplies and increased sow liquidation due to high feed costs.
30-day outlook: As harvest picks up, pressure on grain and soy markets will mount, which should give producers some temporary, but much-needed, relief from high feed costs. This should help to slow aggressive sow liquidation, though to what extent will be dependent upon how far feed costs fall. Potentially record net losses are forecast by some for hog producers in the final quarter of this year.
90-day outlook: Hog supplies will continue to build through the fall as temps cool, keeping pressure on the cash market until November when holiday buying by retailers starts. Meanwhile, watch for uncertainty about the U.S. economy to build as the “fiscal cliff” approaches. This could have a negative affect on red meat demand.
Hedgers: Carry all risk in the cash market for now.
Feed needs: Risk is covered in the cash market for now.
Cattle
Price action: Live cattle futures posted short-covering gains for the week, but remain within the boundaries of the recent consolidation range. Feeder cattle futures also posted gains for the week, but have yet confirmed a major low has been struck.
5-day outlook: Labor Day marks the official end of the summer grilling season, sparking concerns retailer demand for beef will slump. Traders returning on Tuesday will be interested to see how strong weekend clearance was. Continued solid beef movement this week signals there is a little more “summer” left for featuring.
30-day outlook: With cattle supplies tightening, the market can absorb a short-term lull in the beef market without any significant impact to the cash market. Therefore, look for nearby live cattle futures to remain at a premium to the cash market.
90-day outlook: Calf supplies have tightened dramatically and ongoing cow slaughter due to the intense drought signals the contraction phase of the cattle cycle will linger. Once producers begin to hold back heifers, beef supplies will tighten. But until ample rains erase soil moisture deficits, producers will not be interested in expanding -- especially if grain prices remain historically high.
Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now.
Feed needs: Risk is covered in the cash market for now.
