Livestock Analysis | February 8, 2022
Price action: April lean hog futures rose $2.525 to $103.80 after posting a contract high at $104.675. February lean hogs rose $2.625 to $90.325, a four-month closing high.
Fundamental analysis: April hog futures posted fresh contract highs for the fifth day in the past six and deferred futures also notched contract highs continuing strength in cash fundamentals and a tight supply outlook. Today’s CME lean hog index rose $1.57 to $85.87, the highest since Oct. 19, and is expected to gain another 75 cents tomorrow. Wholesale pork prices also extended recent gains. Pork cutout values rose $1.81 early today to $100.00, the highest daily reading since Nov. 3. Movement by midday totaled 174.76 loads. February futures’ premium to the CME index widen to $4.455 at today’s close, which may discourage followthrough buying in futures to some degree. But with hog numbers down and demand improving with the summer grilling season ahead, longer-term hog fundamentals look solidly bullish.
Technical analysis: Market bulls gained additional momentum today, though the steep rally over the past two weeks vaulted futures well into overbought conditions, which may make the market vulnerable to a long liquidation sell-off. April hogs ended the day at 78.4 on the Relative Strength Index, above the 70 threshold that’s typically considered overbought. The next upside objective for bulls is closing April futures above solid resistance at $105.00. The next downside objective for bears is closing prices below solid support at $93.00. First resistance is at today’s contract high of $104.675. First support is at $100.00, then at $99.00 and the 10-day moving average at $98.22.
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: April live cattle fell 22.5 cents to $146.175, the lowest close in a week. March feeder cattle jumped $1.85 to $166.875.
Fundamental analysis: February live cattle rose 15 cents to $141.975, about $2.00 over last week’s five-area average live steer price of $139.76. That implies sustained cash market firmness over the next three weeks. Meanwhile, the April contract’s premium of about $4.00 over February implies what looks like a fairly normal seasonal advance over the next eight to 10 weeks. This implies a significant rise in wholesale beef values during that time frame. Early today, Choice cutout values fell 29 cents to $279.25.
Conversely, the discounts built into summer contracts are small by historical standards, while it has been rare for the deep deferred contracts to be trading at premiums to late-winter cash quotes. Bulls appear to be anticipating an eventual resurgence of beef demand. We believe retail beef prices will have to decline substantially before that will happen, so we favor a guarded approach to the intermediate-to-long-term cattle outlook.
Feeder futures are also trading at sizeable premiums to the latest quote for the CME feeder cattle index (against which futures cash-settle) at $160.53. We have come to think ranchers might start thinking seriously about building protection amid the historically elevated prices on the CME board.
Technical analysis: Despite today’s slide, bulls still own a short-term technical advantage in April live cattle. The weak opening and follow-through to the downside seemingly presented an opportunity for bears to take control, but they were unable to mount a serious challenge of 10-day moving average support at $144.97, with today’s low at $145.235 now marking initial support. Pivotal support remains at the 40-day moving average at $142.90, with a drop below that level likely opening the door to a test of the January low of $139.025. Monday’s contract high at $147.375 likely represents initial resistance, so a push above that level would have bulls targeting the $150.00 level.
Today’s feeder action also looked supportive for bulls, with the March contract rebounding strongly after having tested support between the contract’s 40- and 20-day moving averages (near $164.79 and $164.18, respectively) before turning sharply higher. A drop below that area would have bears looking to test last month’s lows around $158.00, whereas a close above yesterday’s high at $167.95 would open the door to a test of the January high at $170.825.
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.
