In a December 27, 2023, Barchart article, I wrote:
Expect the hogs to recover as the market moves towards the 2024 grilling season beginning in late May. Meat prices tend to rally as the season approaches, so cattle and hog futures could see upward pressure in March and April. Hogs underperformance in 2023 could lead to an outperformance compared to cattle in 2024.
In Q1 2024, lean hog futures significantly outperformed the live and feeder cattle futures. The animal protein sector rose just over 19% from the end of 2023 through March 29, 2024.
Cattle futures rally in Q1 2024
After closing 2023 at the $1.6850 per pound level, the continuous live cattle futures contract rallied 9.79% in Q1 2024.
The monthly chart highlights nearby live cattle futures settled at $1.8500 per pound at the end of Q1 as the bullish trend since the April 2020 $0.8145 low continued.
Meanwhile, feeder cattle futures, which fell to $1.0825 per pound in April 2020, have also been on a bullish path.
The monthly feeder cattle chart highlights the Q1 2024 11.17% gain, moving from $2.2230 at the end of 2023 to $2.47125 per pound on March 29, 2024.
Lean hog prices outperform the cattle
While cattle prices were up either side of 10% in Q1, lean hogs led the way on the upside.
The monthly continuous lean hog futures chart illustrates the Q1 36.08% gain that took pork prices from 67.975 cents at the end of last year to 92.50 cents per pound at the end of March 2024.
While cattle have been on a primarily one-way bullish path since the 2020 low, lean hogs have been choppy since trading at a 37 cents per pound low in April 2020.
A look at the pork-beef spread
I like to call the spread between live cattle and lean hog futures prices the what’s for dinner spread. Consumers have choices when it comes to the dinner table. Pork or beef is a spread that reflects the relative cost of feeding a family.
The chart ({LEM24}/{HEM24})dating back to the early 1970s shows the average level of the value relationship between live cattle and lean hogs is around 1.4 pounds of pork to one pound of beef. At over 2:1 in early April, and at the 2:1 level at the end of Q1 2024, pork remains historically inexpensive compared to beef.
The peak season begins in late May, but futures reflect the seasonality sooner
Seasonality is always a leading indicator of the path of least resistance of commodity prices. In the futures arena, prices often move as a season change approaches. The meat markets are preparing for the 2024 grilling season when beef and pork consumption rises as barbeques emerge from storage and the aroma of sizzling steaks, burgers, hot dogs, ribs, and other meats fill the summer air. The official start of the 2024 grilling season is the Memorial Day weekend in late May and runs through the Labor Day weekend in early September. Animal protein producers tend to increase production in late winter and early spring to meet the annual peak demand when prices often reach seasonal highs.
The reasons meat prices will remain strong and could reach new record peaks over the coming months
While the 2024 grilling season is on the horizon, beginning late next month, other factors remain bullish for cattle and hog prices:
- Inflation, including higher energy, equipment, labor, feed, and other inputs, has pushed cattle and hog prices higher.
- While the trend in cattle is highly bullish, with prices reaching record highs in 2023, prices remained elevated throughout the offseason for demand, pointing to underlying strength.
- Hog prices have been more volatile than cattle, but the overall trend since the April 2020 low remains bullish.
- Environmental concerns about cattle methane emissions have caused increased regulatory costs for animal protein producers. Higher costs translate to rising market prices.
- The worldwide population is growing by approximately 20 million people per quarter. With over eight billion mouths to feed, the demand for meats is rising and supplies must keep pace with the increasing consumer demand.
- In the United States, the leading hog processing company, Virginia’s Smithfield Foods, is wholly owned by a Chinese company. China’s rising profile in the hog and other agricultural commodity markets is bullish for prices. Deteriorating relations between Beijing and Washington only exacerbate the potential for higher pork prices over the coming months and years.
Animal proteins were the second-leading sector of the commodities market in Q1 2024, posting an over 19% gain. As the markets move into the 2024 peak grilling season, the odds favor higher highs over the coming months. I am a buyer of cattle and hog futures on any price weakness in Q2.
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.
