Futures for live cattle and lean hogs on the Chicago Mercantile Exchange (CME) closed lower in the final trading sessions of the year, influenced by year-end portfolio adjustments and key government data. Analysts pointed to thin holiday trading between Christmas and New Year's as a factor in the moves.
Year-End Profit Taking Weighs on Markets
According to Doug Houghton, an analyst at Brock Associates, many investment funds continue to hold net long positions in the livestock markets. "If they're taking profits, that's going to weigh on things," Houghton stated. This activity of closing positions to lock in gains before the year-end contributed to the downward pressure, especially with reduced trading volumes.
Specifics of the Price Movements
The benchmark CME February live cattle contract settled 0.675 cents lower at 228.975 cents per pound. In contrast, March feeder cattle futures rose by 1.250 cents to reach 341.675 cents per pound. For lean hogs, the key February contract dipped 0.050 cent to 84.475 cents per pound.
Bearish Factors for Hogs and Cattle
For the lean hog market, a significant bearish signal came from the U.S. Department of Agriculture's (USDA) quarterly hogs and pigs report released last week. Houghton noted the report showed larger inventory numbers than analysts had anticipated, suggesting higher future supplies and pushing prices down. Supporting this trend, the USDA reported on Monday afternoon that pork bellies fell $4.50 to $124.08 per hundredweight (cwt).
In the cattle complex, beyond profit-taking, traders remain cautious about potential policy shifts. "There's still a lot of trepidation in the market about when the USDA might re-open cattle imports from Mexico," Houghton observed. The U.S. has blocked these imports due to concerns over the New World screwworm parasite in Mexico. A reopening would increase domestic animal supplies, likely putting further pressure on futures prices.
Packers Face Deepening Losses
The pressure is also evident further down the supply chain. Data from the USDA showed that in the boxed beef market, choice cuts fell $1.88 to $349.33 per cwt, while select cuts rose $1.82 to $345.62 per cwt. More strikingly, beef packers are facing severe financial strain.
According to figures from livestock marketing advisory firm HedgersEdge.com, beef packers lost a significant $235.00 per head of cattle processed on Monday. This marks a sharp deterioration from a loss of $204.95 on the previous Friday and $161.90 a week ago. Houghton emphasized the impact, stating, "Packer margins are sharply negative and it's certainly a negative market factor."
The combination of year-end financial maneuvering by funds, bearish supply data for hogs, policy uncertainty for cattle, and worsening packer economics created a mixed but generally soft tone for livestock futures as 2023 draws to a close.
