In early June, the grills are out of storage, and the aroma of smoked and grilled meats fills the warm air as friends and family gather to enjoy the weather and vacation season. Sizzling steaks, burgers, hot dogs, ribs, and other meats are a part of American culture. The demand for beef and pork products will rise over the coming weeks and months, ending on the Labor Day weekend in early September when the summer ends and grills are packed up and sent into storage until the summer of 2024.
Live and feeder cattle futures have been trending higher since reaching lower in early 2020, and lean hog futures have not been on the same bullish path. The cattle trend suggests supply issues, while the price action in the hog futures arena reflects a glut of pork at the beginning of the 2023 peak grilling season.
Live cattle prices remain on a bullish path
The continuous live cattle futures contract reached the lowest price since December 2009 at 81.45 cents per pound in April 2020 as the global pandemic gripped markets across all asset classes.
The chart highlights the steep pattern of higher lows and higher highs that have taken live cattle prices to over double the price at the 2020 multi-year low. At the most recent continuous contract high at $1.7770 in April 2023, live cattle were 118.2% higher. The $1.7770 per pound level was a new all-time peak for the fat cattle, exceeding the November 2014 $1.7165 high.
Feeder cattle have made higher lows and higher highs
The continuous feeder cattle futures contract fell to $1.0825 per pound in April 2020.
The chart shows the rally to $2.38775 in May 2023, a 120.6% increase from the 2020 low.
Cattle prices have increased significantly as inflation increased production costs, and the demand for beef was robust. At the beginning of the 2023 grilling season, feeder cattle are close to the all-time $2.4065 per pound high from October 2014.
Lean hog prices have been choppy but remain significantly above the 2020 low
While beef prices have skyrocketed, pork prices have been on a roller coaster. Lean hog futures fell to a 2020 pandemic-inspired 37.0 cents per pound low in April 2020.
The five-year continuous contract chart shows at 81.05 cents per pound on May 31; lean hogs were 119% higher than the 2020 low. Meanwhile, the hog futures rose to $1.22725 in June 2021 and $1.22525 in August 2022 as they reached seasonal highs during the grilling season. In 2023, a pork glut has kept prices under control and well below the $1 per pound level at the beginning of the peak demand season.
In the latest May World Agricultural Supply and Demand Estimates Report, the USDA raised its 2023 beef price forecast but lowered its projection for hog prices.
Expect peaks before the fall- Seasonality is critical in the meats
If history is a guide, animal protein prices will remain elevated throughout the summer, peaking before the fall. The seasonal line in the sand comes in early September as the Labor Day Weekend holiday marks the end of the 2023 grilling season.
Seasonality is critical for meat prices, as hog prices demonstrate, falling off the edge of a bearish cliff after reaching highs during 2021 and 2022 in June and August. However, live and feeder cattle prices have bucked the seasonal trend over the past years, making higher lows and higher highs on the way to the current price levels.
COW is the only ETN that tracks the meats
The only direct route for a risk position in the live and feeder cattle and lean hog markets is via the CME’s livestock futures contracts. Those looking for exposure to livestock futures without venturing into the futures arena have only one choice, the iPath Series B Livestock Subindex TR ETN product (COW). At $37.85 per share on May 31, COW had around $10.75 million in assets under management. COW trades an average of 4,035 shares daily and charges a 0.45% management fee.
The chart illustrates COW’s rally from the 2020 $26.40 low to the February 2022 $41.81 high, a 58.4% rise. At $37.85 on May 31, 2023, COW remains closer to the early 2022 high. COW underperformed live and feeder cattle and lean hog futures from the 2020 lows to their most recent respective highs. However, the ETN is the only alternative for those looking for livestock futures without the leverage and margin involved in the futures arena.
The 2023 grilling season began last weekend and runs through early September. Expect elevated prices to remain over the coming months. Seasonality will likely cause prices to drop later this year as the demand for beef and pork declines when those barbecues return to storage for the 2024 peak season.
On the date of publication, Andrew Hecht 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.
