Cattle:

Cash cattle traded at $187 live in Nebraska. That was even with last week. No trades yet in the South where they moved last week at $186 or Northern dressed, last week at $296. Steady trade is what was expected.

Futures have removed much of their prior concerns over future declines in beef demand. They now suggest cash cattle will run $186 - $188 through the end of the year. For the first four months of next year they suggest $185 - $188. That would be +2% to +3% year/year.

Wholesale beef is mirroring last year's October rebound well. Last year's beef trade saw a dramatic summer high then a long extended move lower into December. But from 10/4 - 10/30 last year saw a 12.52 rebound. Including today's +1.61 morning trade, we have a rebound since 9/26 coming to 12.08. Beef pricing is +2% vs. last year currently.

The monthly inflation report will be out tomorrow. The cattle market may monitor this one with moderate interest. This past Friday's monthly employment report really helped to calm some beef demand fears. September job growth totaled 254,000. This was far over the 140,000 expected. It is also the best number in eight months. The prior 142,000 August estimate was raised to 159,000. The most recent 89,000 estimate for July was raised to 144,000.

McDonald's has filed suit against JBS, Tyson Foods, Cargill, National Beef and others. They allege these companies conspired for years to limit beef supplies. While we may all hold a little skepticism of the US packing industry we're not sure about the validity of this one. Packers only have moderate ability to “control” supply in the near term. They have no impact on general long term supplies. They are essentially takers of supply offered to them. We're not sure how McDonald's is going to argue that the general beef supply decline is due to packers. Wholesale beef is +22% since 2022. Cash cattle, because this is a supply restriction at the base producer level, is +29% from 2022. This is due to a cow/calf liquidation that has dropped US beef production by 6%.

Let's review beef processing margins. Over the past two years Tyson's beef segment margins went from +11% to +14% in the first three quarters of 2022 down to -1% in the first two quarters of 2024. Heck, they are going to run in the red in both 2025 and 2026. Packers played the prior expansion cycle correctly but removing processing capacity. As a group, they've completely bungled this liquidation cycle with actual processing expansion. They not only don't control supply over the long term. Any effort they could do to “restrict supply” has cost them dearly. Now, if McDonald's would like a better approach they could perhaps suggest collusion of some sort with weekly bids. Perhaps a legal discovery process that opens up communications between various buyers would find something.

There will be another US beef supply decline in 2025. But it will be more gradual than sudden. Placements of new calves and feeders into the nation's feedlots, from January - August would be called "mixed". At 14.376 million head they are -1.9% from the prior year. This group determines fed cattle supplies Q4 through a part of Q2. We are already hearing some estimates for the October 25 Cattle on Feed report. Current talk is a light -2% to -7% for September placements.

USDA sees 2025 production at 25.625 billion. They are still on board with the next step in this supply decline starting next year. They see the year as a whole -4.3% from 2024. USDA will update their view on Friday.

December live cattle futures are in an uptrend. There is one more upside point that may be reasonable, the next gap at the 7/30 close at 188.17. For full disclosure, there is another one even higher. That is at the 3/21 close, 190.15. We hesitate to suggest that is realistic. Bears do not have control of this market. We hesitate to suggest the open downside gap on the intraday chart, the 9/11 close of 177.22, is realistic.

The November feeder cattle chart looks strong. The main thrust of this rally is accomplished. It must be pointed out the rally is still ongoing though. Whether it has enough strength to fill the next intraday gap, the 7/31 close of 255.12 is a question. Bears do not have pull in this market. There is a downside gap at the 9/18 close of 238.12. That may not be a realistic target…Rich Nelson

Hogs: 

Futures, separate from cash markets, saw a little shakeup today. This comes after new uptrend highs yesterday. We are waiting for a clear sign of some sort that this near term situation, lower than expected supply and remaining wholesale procurement, is changing. This rally can last into mid-October if it wants so we're being dainty on calling a top.

Despite today's corrective price break we don't have clear knowledge yet that the supply portion of this rally is fixed. We're estimating this week at a 2.572 million head run, -1.4% year/year. This now makes it four weeks in a row with a stepped down production. The prior period saw kills +2% from last year.

Including today's +0.82 trade, wholesale pork is currently +1.32 for the week. We do not have confirmation yet of a change to this recent stable pattern.

Cash hogs were +0.09 on Tuesday and +0.34 on Monday. There is no clear sign of a change here. Futures are suggesting the current +3% year/year cash hog trade will not slip as much as last year into December. December futures are priced +14% year/year.

USDA's Economic Research Service on 9/12 saw Q3 pork production +4.4% year over year and Q4 +4.5%. We had previously suggested their Q4 numbers were too large. The recent Hogs & Pigs, along with finishing weights now +2%, would favor their view. For 2025 they are currently +1.6% from 2024 for the whole January - December period. Within that number they expect Q1 +0.2% year/year and Q2 at +1.3%. The next update for their view comes on Friday.

The seasonal for futures is different than cash markets. Futures spend their time pricing in the coming low price environment set for winter. However, they typically over-estimate the coming cash price decline. The seasonal low for October, December and February futures is August 24. October typically rallies into its expiration. December futures typically post a minor rally to September 15, break to October 3 then one last rally to peak on October 16. February posts a similar convoluted rally until November 20. We would suggest the current major low from July 10 for October, July 15 for December, is THE major low. Our economic value view is $74 for the October and $70 for December.

On the chart, December lean hog futures remain in an uptrend. There are two gaps still ahead at higher pricing. We previously did not see a chance at them getting filled. They are at the 4/24 close of 78.47 and the 4/8 close of 79.55. We still remain a little skeptical of them. Bears, who do not have control of this market, have one reasonable downside gap to fill, the 9/17 close of 72.17. There is one more way down at the major lows in July, the 7/15 close of 62.57 but that may not be a viable discussion...Rich Nelson