Livestock Analysis | January 25, 2022
Price action: April lean hog futures rose $1.925 to $97.25 today, a lifetime-high close for the fourth straight session. February futures rose $1.125 to $87.45, the highest settlement for a nearby contract since mid-October.
Fundamental analysis: Bulls gained further momentum as lean hogs ended higher for the seventh session in a row and have rallied over $13 from a January low of $83.60. Strong cash market fundamentals continue to drive futures higher. Pork cutout values dipped 12 cents early today, to $95.54, still near the highest levels since mid-November, and movement by midday was solid at 204.20 loads. On a national direct basis, the latest five-day rolling average cash hog price is $64.82. The CME lean hog index tomorrow is projected down 24 cents at $78.08.
Hog futures traders may surmise that with beef prices still near record highs, grocers will purchase more pork in coming weeks, especially ahead of the Easter ham season. USDA yesterday reported U.S. pork stocks fell 3.2 million lbs. in December, to 398.9 million lbs. That’s smaller than the five-year average decline of 12.8-million-lbs. for the month.
Technical analysis: Lean hog futures market bulls have a strong near-term technical advantage, but the market is short-term overbought and due for a downside correction soon, possibly this week. Prices are in a 2 1/2-month uptrend, and the next upside objective for the bulls is to close April futures above solid resistance at $100.00. The next downside objective for bears is closing prices below solid support at $90.00. First resistance is seen at today’s contract high of $97.375, then at $98.00. First support is seen at today’s low of $95.575, then at this week’s low of $93.40.
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.
Price action: Cattle futures settled mixed, with only the February and April contracts ending higher. February futures advanced 77.5 cents to $137.10, while April gained 2.5 cents to $140.10.
Fundamental analysis: Nearby live cattle posted a modest recovery from sharp losses the previous two sessions amid reports of steady to firm cash trade, while stronger corn prices weighed on the feeder market. Last Friday’s USDA Cattle on Feed report continued to pressure live cattle, but the higher-than-expected December placement figure wasn’t as bearish as it seemed, since the bulk of the animals placed were concentrated at lighter weights.
Of more concern was the laggardly marketings figure, since it suggested cattle might be backing up in feedlots. Indeed, the fact that last week’s slaughter total fell 3.9% under the comparable year-ago level after averaging about 5% under early-2021 rates in early January, also argues for increasing market-ready supplies in feedlots. Conversely, the weekly increase of 18,000 head seemingly confirmed ideas packers are moving past their recent Omicron-related processing slowdowns and will soon be slaughtering at a normal pace once again, which seems likely to support cash prices.
April futures’ modest premium over cash prices, reported around $137.00 early this week, looks small by historical standards. That may reflect ideas that excessive market-ready cattle in feedlots will limit the usual seasonal rally. Ideas that elevated retail beef prices will limit consumer demand may be weighing on prices as well. We are more optimistic, thinking grocers will reduce their asking prices more in keeping with the sizeable reductions seen in wholesale quotes last fall, which in turn should boost consumer demand somewhat.
Technical analysis: Last Friday’s weak close and yesterday’s gap opening at lower levels put bears in seeming control of the short-term technical situation. Today’s action did help the bulls moderately, confirming yesterday’s low at $139.025 in April futures represents solid support. Still, a drop below that level would have bears targeting the Nov. 1 low at $136.475 for a follow-through move. Resistance is layered above yesterday’s high at $141.35, with the contract’s 10-, 40- and 20-day moving averages coming in at $141.55, $142.17 and $142.42, respectively. A push above last week’s high at $143.775 would then have bulls targeting the Dec. 29 contract high at $145.85.
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.
