A Trainwreck in Live Cattle Is Dragging Prices Lower as Lean Hogs Suffer Too

October live cattle (LEV26) futures on Friday fell $1.175 to $218.875, hit an eight-month low, and for the week were down $6.40. September feeder cattle (GFU26) futures lost $2.65 to $334.55, also hit an eight-month low, and for the week fell $10.675. The cattle futures markets saw some panic selling early in the session Friday by traders that were spooked by uncertainty following news that Tyson Foods (TSN) “is making strategic changes to its beef operations to position the company for long-term success.” The company said in a press release that it will end operations at its Joslin, Illinois, beef facility and its Eagle Mountain, Utah, case-ready facility and is pursuing the sale of its Pasco, Washington, beef facility. 

However, futures prices recovered as the session progressed. Lower cash cattle trade last week was also bearish for futures. Friday’s technically bearish weekly low closes in live and feeder cattle futures set the table for more price pressure from the chart-based speculators early this week.

Livestock stress was quite high in the central and southwestern Plains last week, with daily temperatures well over 100 degrees, impacting areas from Kansas to Texas. Animal weight gain has likely been poor in recent weeks. Weather forecasts for this week call for cooler temperatures in the region.

The USDA at midday Friday reported active cash cattle trading at lower money, with steers averaging $229.40 and heifers $229.44. The agency reported average cash cattle trading the week prior at $235.21. 

Labor Day generally provides a bump to boxed beef prices. Over the past 15 years, on average, Choice boxed beef is 4% higher on the first market day of September compared to the first of August and finishes higher in 12 of 15 years. Those gains are typically short-lived compared to the mid-summer grilling season, however. According to Pro Farmer economist Spencer Langford, boxed beef prices on the last day of September are on average $3.36 lower than the first day of August. That indicates that in typical years, weakening demand into the autumn months results in a quick erasure of gains notched during the final full month of summer.

The major U.S. stock indexes hitting record highs this summer is good for upbeat consumer attitudes that could support better consumer demand for beef at the meat counter. Last week’s U.S. inflation reports that showed tamer readings than in previous months was also a positive for consumers, suggesting the Federal Reserve will hold off on raising interest rates. All the above lean in favor of better demand for beef at the meat counter. 

However, likely superseding the above elements for consumer confidence is the fact that retail gasoline prices are still elevated. If such remains the case, demand for beef could be crimped with gasoline prices around $4.00 a gallon at the pumps.

Lean Hog Futures See More Technical Selling Pressure

October lean hog (HEV26) futures on Friday fell $0.375 to $81.75, hit a six-week low early on, and for the week were down $0.475. Chart-based speculators continue to control the futures market as technicals remain firmly bearish, including Friday’s bearish weekly low close in October hogs. Prices are in a downtrend on the daily bar chart. Declining cash hog prices also favor the futures bears. The trainwreck in the cattle futures market last week has also spooked the hog futures bulls.

The latest CME lean hog index is down 2 cents to $95.87. Today’s projected CME index price is down 19 cents at $95.68. The national direct five-day rolling average cash hog price quote for Friday was $96.63.

Historically, the CME lean hog index price softens from late summer into fall as more hogs reach market weight, although October futures have already priced in much of this expected decline.

The weakening CME lean hog index and national direct prices suggest a seasonal top in futures as summer demand softens and supplies typically build into the fall. The shake-up in the cattle industry, with recent plant closures and historically tight cattle supplies, is likely to continue to impact the hog industry and futures markets in the months ahead. 

Hog traders can argue the situation could be bullish, given historically elevated beef prices at the meat counter meaning better substitution demand for pork. However, the uncertainty in the cattle industry could spill over into the hog industry.

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