Livestock Analysis | January 20, 2022

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Hogs

Price action: April lean hog futures soared $2.65 to $94.00, a lifetime-high close for the contract. February futures rose $2.625 to $84.925, the highest close for a nearby contract since mid-October.

Fundamental analysis: Hog futures extended a week-long rally amid growing confidence the Covid-related disruptions that hampered pork processors are fading, even though slaughter rates this week still lag last week’s and last year’s levels. There are some concerns over the possibility of China invading Taiwan, which could trigger a halt in U.S. pork sales to China, but we tend to agree with the apparent optimism reflected in spring and summer futures, which notched contract highs today.

A short-term setback is still possible, especially after the preliminary figure for the next CME lean hog index down 35 cents to $76.50. In fact, today’s late-session jump left the February contract at a premium of over $8.00 to the cash equivalent price. April futures ended the day another $8.925 higher. Firming pork prices likely contributed to futures’ gains, though pork cutout values fell $3.04 early today to $92.42.

Technical analysis: Bulls own a strong technical advantage in the wake of today’s price action, particularly after nearby February futures obliterated the short-term downtrend line drawn across the Dec. 27 and Jan. 6 highs. The late surge carried the market above those levels, putting the contract’s Oct 1 top at $87.475 in their sights. A push above that level would then have them targeting the June high at $90.975. Initial support is now likely at the Nov. 26 high of $84.68, with backing from the now broken downtrend line near $83.35. A reversal and drop back below those levels would likely have bears shooting for the 40-day moving average near $80.90.

What to do: Get current with feed advice. We are targeting a drop to the $385 area (50% retracement of the November-to-January rally) to further extend coverage. You remain hand-to-mouth on corn-for-feed needs. Our target for extending corn coverage would be a drop to the $5.75 area.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You have all soymeal needs covered in the cash market through the end of January. You remain hand-to-mouth on corn-for-feed needs.

 

Cattle

Price action: April live cattle futures fell 17.5 cents to $143.175, while March feeder cattle fell 67.5 cents to $164.95.

Fundamental analysis: Live cattle futures fell in a mild corrective setback from yesterday’s gains, but declines were limited by signs the cash market is establishing a bottom after weakening since mid-December. Cash sources have reported light to moderate cash cattle trade so far this week at roughly steady prices compared with last week. Today USDA reported a live steer average so far this week at $136.92, slightly firmer compared to last week’s average of $136.49.

Cattle futures also gained support from a month-long climb in wholesale beef prices and indications slaughter rates are returning to normal following Covid-related slowdowns earlier this month. Choice cutout values rose another $1.50 early today to $293.10, the highest daily average since Sept. 20. Movement by midday totaled 78 loads. Cattle slaughter so far this week was an estimated 461,000 head, up 6,000 head from the same period last week but down 12,000 head from the corresponding period a year ago.

Technical analysis: Live cattle bulls hold a near-term technical advantage despite today’s declines, with futures trading above most major moving averages. An uptrend drawn from early-October lows remains intact, though prices appear to be consolidating around the middle of the past month’s trading range and bulls likely need to close April futures above yesterday’s high at $143.775 to sustain momentum.

Bulls' upside objectives include closing April futures above solid resistance at the contract high of $145.85. Downside objective for bears include a close below support at the December low of $139.925. First resistance is seen at the November high of $144.60, then at $145.00. Support is seen at this week’s low of $140.75.

What to do: Get current with feed advice. We are targeting a drop to the $385 area (50% retracement of the November-to-January rally) to further extend coverage. You remain hand-to-mouth on corn-for-feed needs. Our target for extending corn coverage would be a drop to the $5.75 area.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You have all soymeal needs covered in the cash market through the end of January. You remain hand-to-mouth on corn-for-feed needs.

 

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