Livestock Analysis | January 27, 2022
Price action: February lean hog futures fell $1.00 to $87.025, while most-active April dove $1.775 to $94.675, the lowest close in over a week.
Fundamental analysis: Livestock futures were pressured by concern dollar strength may crimp export demand for U.S. beef and pork. The U.S. dollar index hit its highest level since July 2020. Hog market fundamentals are otherwise price-supportive, with the next CME lean hog index expected to gain 55 cents to $79.75, the highest since late October. Pork cutout values jumped another $5.46 early today to $98.37. Covid-driven slowdowns at U.S. meatpackers may be building market-ready supplies in hog barns, but the ongoing futures strength offer little indication of underlying weakness.
Ultimately, today’s breakdown probably stems in part from overbought conditions created after strong mid-January gains, but the main driver of the drop seemed to be the big surge posted by the U.S. dollar. Dollar gains reflected Federal Reserve leaders’ increasingly hawkish tone as it signals plans to raise short-term interest rates to stem surging inflation. Other key commodity markets, include crude oil, fell today.
Technical analysis: Bulls hold a short-to-intermediate term technical advantage, but the very short-run outlook seemingly favors bears after the price action of the past two days. April had closed higher over seven consecutive sessions, stalled yesterday, then fell sharply today. Bulls can probably count on some support at today’s low of $94.00, but a quick test of support at the 10-day moving average around $92.70 seems possible. A drop below that level would have bears targeting the Jan. 6 high and 20-day moving average, both around $89.70. Yesterday’s high at $97.50 looks like initial resistance, but a close above that level would likely have bulls targeting 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 fell 27.5 cents to $141.625, near the middle of today’s range, while March feeder cattle fell $1.30 to $159.50.
Fundamental analysis: Live cattle futures fell amid continued weakness in wholesale beef and expectations for rising animal supplies in the wake of last Friday’s bearish USDA Cattle on Feed report. The U.S. dollar’s rally to the highest levels since July 2020 also pressured cattle, stirring concern that foreign demand for U.S. beef could be pinched. Choice cutout values fell another $1.03 early today to $288.43, the lowest daily average since Jan. 17, while Select fell 38 cents to $279.34. The wholesale market’s recent weakness suggests retailers have secured near-term needs after buying actively after the holidays, at the same time a pick-up in slaughter portends increasing supplies.
USDA reported live steers averaging just under $137.00 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 bids. Net weekly beef sales totaled 14,300 MT for 2022, primarily for South Korea (6,200 MT, including decreases of 400 MT) and Japan (3,900 MT, including decreases of 500 MT). Exports totaled 14,300 MT.
Technical analysis: Live cattle’s rebound from a drop near two-month lows at the beginning of this week stalled today and prices appear to be consolidating around the middle of the past month’s trading range. Bulls' objectives include closing April futures above solid resistance at last week’s high of $143.775. Downside objectives for bears include closing prices below solid support at this week’s low of $139.025. First resistance is seen at yesterday’s high of $142.225, then at $143.00. First support is seen at yesterday’s low of $140.475, then at $140.00.
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.
