After a 1.74% gain in 2023 and a 19.01% increase in Q1 2024, the animal protein sector edged only 0.66% higher in Q2 as cattle futures posted gains and lean hog futures declined. The peak grilling season runs from late May through early September when the demand for meats rises to annual highs as grills work overtime.
Meanwhile, cattle futures have been in bullish trends since the 2020 pandemic-inspired lows, while hog futures have been choppy, reflecting seasonal factors. The continuous live and feeder cattle contracts reached record highs in Q2, while hogs only briefly traded above the $1 per pound level before correcting lower. Beef remains historically expensive compared to pork as we head into the second half of 2024, with the end of the grilling season only two months away in early September.
Live cattle edge higher in Q2 but make a new high
Live cattle futures edged only 0.23% higher in Q2 and gained 10.04% over the first half of 2024.
The monthly chart highlights the marginal gain in the live cattle futures in Q2 and the move to a new record $1.9515 per pound peak in June 2024 on the continuous futures contract. Live cattle futures settled Q2 at $1.85425 per pound.
Feeder cattle posted a more significant gain and reached a new price peak
Feeder cattle futures moved 4.93% higher in Q2 and were 16.64% higher over the first six months of 2024. The feeders outperformed the fat cattle since the end of last year and during the second quarter.
The monthly chart illustrates the gain in the feeder cattle futures in Q2 and the move to a new record $2.6495 per pound high in May 2024 on the continuous futures contract. Feeder cattle futures settled Q2 at $2.5930 per pound.
Lean hog futures weighed on the meat sector
After a 36.08% rally in Q1, lean hog futures corrected, falling 3.16% in Q2 and were 31.78% higher since the end of 2023.
The monthly chart shows the Q2 decline and that lean hog futures only managed to eclipse the $1 per pound level briefly in May 2024. The continuous contract settled at 89.575 cents per pound at the end of Q2, well below the July 2014 $1.3380 record high.
The beef-pork spread points to historically high beef prices
The beef-pork spread that measures the cost of a pound of live cattle against a pound of lean hogs remained elevated at the end of Q2.
The long-term chart ({LEQ}/{HEQ24}) illustrating the price of nearby live cattle divided by nearby lean hog futures shows a bullish trend since the 1997 low, displaying that beef prices have become more expensive than pork. The long-term trend dating back to the early 1970s shows a midpoint at around 1.4 pounds of pork in each pound of beef value. At over 2:1, live cattle futures prices are historically high compared to lean hog futures prices. The spread of the continuous contracts has ranged from 1.858:1 to 2.559:1 in 2024, well above the long-term midpoint. At around the 2:1 level at the end of Q2, cattle were historically more expensive than hogs.
The outlook for Q3 and the second half of 2024
With around two months before the end of the 2024 peak grilling season, beef and pork prices should remain elevated over the coming weeks. However, futures reflect the deferred prices, so as the August contracts roll to the next active months, we could see a seasonal selloff in cattle and hog futures later this month and around the middle of Q3.
Animal protein prices tend to reach seasonal lows during fall and winter when grills move into storage until the next peak BBQ season. Selling any significant rallies over the coming weeks could be the optimal speculative approach. However, while hogs have reflected seasonal influences over the past years, the cattle futures market has been in a bullish trend for over four years. The trend is always your best friend in any market. As production costs have increased, the price of beef continued to rise even during the off-season periods.
Cattle and hog prices are mostly higher in early July 2024. Happy 4th of July!
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.
