Livestock Analysis | February 7, 2022
Price action: April lean hogs rose $1.20 at $101.275 after hitting a fresh contract high at $102.85. February futures rose 67.5 cents to $87.70.
Fundamental analysis: Strong cash market fundamentals and bullish charts continue to draw speculative money flow to the long side of hog futures. The CME lean hog index has reached the highest level since mid-October and is projected to gain another $1.57 to $85.87 tomorrow. Pork cutout values rose $4.06 early today to $101.47, led by strength in hams and bellies. Movement was decent at 194.59 loads. The five-day rolling average national direct cash hog prices today was $80.10.
Last week’s hog kill was down 11% from year-ago levels, suggesting hog supplies my dip more than USDA’s expected 6.0% decline. Today’s estimated slaughter was 481,000 head, down 7,000 head from last year, but up 6,000 head from last Monday. February lean hog futures’ premium to the cash hog index was $1.83 at today’s close. History suggests cash hog prices will continue rising on a seasonal basis into mid-February.
Technical analysis: Lean hog futures bulls have a solid near-term technical advantage and gained more strength today. However, prices are now technically short-term overbought, at 75.5 on the Relative Strength Index, and due for a downside correction. The next upside objective for bulls is closing April futures above solid resistance at $105.00. The next downside price objective for bears is closing prices below solid support at $93.00. First resistance is at today’s contract high of $102.85, then at $104.00. First support is at $100.00, then at $99.00.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
Price action: Live cattle posted mild losses, with the April contract down 47.5 cents to $146.40 after reaching a contract high at $147.375. Feeder cattle posted heavier declines, with the March contract down $1.075 to $165.025.
Fundamental analysis: Feeder cattle were pressured by strong gains in the corn market. Though feeders worked off their lows into the close, they still finished in the lower portion of today’s range. With corn prices at current elevated levels, daily price movements in that market are likely to be the leading influence on feeder cattle futures. Seller interest in futures could have been greater if not for strength in cash feeder cattle prices at the Oklahoma City auction.
Price action was light and choppy in the live cattle market on conflicting spillover from feeder cattle and lean hog futures. In the end, futures mildly favored the downside as traders took some profits out of the long side of the market following last week’s strong price gains. Choppy trade is likely as traders wait on cash cattle trade to develop, which could take another couple days. Live steers averaged $139.76 last week, up from the previous week’s average of $136.95.
Technical analysis: April live cattle futures pushed to a new contract high today before fading. The contract appears to be consolidating, suggesting either another upside push or a corrective pullback will come later this week. Next solid resistance comes at the psychological $150.00 mark. The old contract high at $145.85 is initial support, followed by the 10-day average at $144.355.
Bulls and bears are on equal footing on the March feeder cattle chart. Broad near-term boundaries are resistance at the December high of $170.825 and support at the January low of $158.225.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
