Livestock Analysis | January 26, 2022
Price action: The April contract led most hog futures lower, dropping 80 cents to $96.45. February futures rose 57.5 cents to $88.025, the highest settlement for a nearby contract since Oct. 14.
Fundamental analysis: April hog futures fell for the first time in eight sessions in a corrective pullback from recent sharp gains. The most-active contract is still up over $13 during that span. Nearby futures’ steep premium to the CME lean hog index, currently $78.45, likely encouraged sellers, as did wholesale pork market weakness yesterday. The preliminary figure for tomorrow’s index is up 75 cents at $79.20, the highest since early November.
Pork cutout values jumped $3.34 early today to $94.51, although the market tend to erase morning gains by the time prices settle. Premiums built into deferred futures indicate optimism over the cash/wholesale outlook, built on expectations of cyclical and seasonal supply reductions into early summer. The usual spring surge in grilling demand is also expected to play a big role. Rising cash cattle and wholesale beef values might also prove supportive, as would lower retail prices for red meat.
Technical analysis: The relative strength index for April lean hog futures reached 75.61 yesterday, well-into oversold territory that typically begins at 70. While bulls hold a near-term technical advantage, further short-term slippage seems likely. Still, today’s low at $97.55 represents initial support, with backing from the Jan. 23 low at $93.15. A drop below that level would have bears targeting the Jan. 19 high at $91.40. Today’s high at $97.50 marks initial resistance, with a close above that level likely opening the door to a test of the psychologically important $100.00 level.
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: April live cattle rose $1.80 to $141.90, nearer the session high. March feeder cattle rose 95 cents to $160.80, nearer the session low.
Fundamental analysis: Short covering boosted cattle futures after the market slumped earlier this week, with a solid rebound in the U.S. stock market today and crude oil strength contributing to the bullish backdrop. However, the stock market has been wobbly recently, which may limit cattle market strength. Ideas still-elevated retail beef prices may limit consumer demand may also restrict the upside in futures prices in the near term.
Light cash cattle trade occurred around $136.00 at mid-week, steady to weaker with last week’s trade. Most feedlots are seeking higher prices but packers will likely be reluctant to raise their bids. There is talk that cattle are backing up in feedlots, partly due to recent slowdown in packing plant operations due to Covid absences. Choice cutout value early today fell another 88 cents to $291.50, though the average remains near a four-month high. Movement at midday was 73 loads.
Technical analysis: The live cattle bulls are showing resilience after early-week selling pressure. Bulls still have the overall technical advantage. Live cattle bulls' next upside objective is closing April futures above solid resistance at last week’s high of $143.775. The next downside objective for bears is closing prices below solid support at this week’s low of $139.025. First resistance is seen at today’s high of $142.225, then at $143.00. First support is seen at today’s low of $140.475 and then at $140.00.
Feeder cattle futures bears have a slight near-term technical advantage, with prices in a three-week downtrend. The next upside objective for the feeder bulls is to close March futures above resistance at $165.00. The next downside objective for bears is closing prices below solid support at the November low of $152.25. First resistance is seen at today’s high of $162.30, then at $163.15. First support is seen at $160.00, then at this week’s low of $158.22.
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.
