April live cattle (LEJ26) futures on Friday fell $4.675 to $232.225 and hit a five-week low. For the week, April live cattle lost $9.875. March feeder cattle (GFH26) futures Friday lost $6.225 to $355.425 and hit a four-week low. For the week, March feeders were down $12.60.
It was a dreadful end to the trading week and month for the live and feeder cattle futures bulls. Friday’s technically bearish weekly and monthly low closes produced serious near-term technical damage to suggest that market tops are in place. A hot producer price index report issued Friday and a risk-off day in the general marketplace were also bearish elements for the cattle markets.
Lower cash cattle trading activity late last week was also negative for futures. More active cash cattle were reported by USDA at midday Friday, with the agency saying steers averaged $243.51 and heifers averaged $243.21. The USDA said the prior week’s average cash cattle trade was $246.91.
Beef Packers’ Cutting Margins in the Red
Beef packers’ cutting margins are presently in the red, which will likely limit their cash cattle bids in the near term. However, reduced slaughter levels have pushed Choice boxed beef to near non-pandemic seasonal records, easing some pressure on the deeply negative packer margins. The closure of a 50,000-head capacity yard in Texas is the most recent example of a bleak landscape for the industry.
Overall Supply and Demand Fundamentals Still Lean Bullish for Cattle Markets
Historically tight cattle supplies on feedlots, as confirmed by the late-February monthly USDA cattle-on-feed report, and still-strong consumer demand for beef at the meat counter will continue to be the main fundamental drivers in the coming months, likely limiting the price downside in futures, cash cattle, and beef markets.
‘Outside Markets’ Will Also Impact Cattle Futures
Cattle futures traders will be more closely watching the U.S. stock indexes in the coming weeks. If the stock indexes continue to wobble, and if notions grow that the Federal Reserve may not be able to lower interest rates, consumer confidence could be dented, which in turn could reduce demand for beef at the meat counter.
Lean Hog Futures Markets Steady Despite Weakening Cattle Futures
April lean hog (HEJ26) futures on Friday closed steady at $95.725 and for the week were up $2.05. The lean hog futures market early Friday saw a modest rebound from Thursday’s losses but could not hold those gains into the close. Still, hog futures performed pretty well given the sharp losses suffered in the cattle futures markets in the past two trading sessions.
The latest CME lean hog index is up 41 cents to $89.12. Today’s projected cash index price is up another 32 cents to $89.44. The national direct five-day rolling average cash hog price quote for Friday was $67.13.
Cash Hog Market Strength Supporting Futures
Cash hog market strength continues to lend support to lean hog futures, with rising beef prices at the meat counter prompting consumers to shift toward the less-expensive pork cuts. Near-term cash hog and pork market fundamentals are bullish as retailers focus on the Easter holiday and upcoming grilling season. However, the key will be if demand, both global and domestic, can match increased pork production from expected increased hog slaughter levels.
The upcoming grilling season coincides with a seasonal contraction in hog supplies and should support hog and pork prices in the coming few months. Still, increased global demand for pork may have to occur to lift hog and pork markets prices in the coming months.
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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.
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