Livestock Analysis | February 9, 2022
Price action: April lean hog futures rose 97.5 cents to $104.775 after setting a contract high at $105.475.
Fundamental analysis: Hog futures posted contract highs for the third straight day on robust cash fundamentals. The CME lean hog index reached the highest levels since mid-October and is expected to climb another 60 cents tomorrow to $87.22. The expiration of February futures Feb. 14 implies an advance of almost $3.00 over the next three sessions. Wholesale pork market extended recent strength, with cutout values jumping $9.01 early today to $104.67, though prices likely will end the day much lower.
Deferred hog futures continue climbing, raising questions over whether late winter-early spring hog supplies are going to live up to USDA estimates for 6.0% and 4.0% annual declines, respectively, from comparable year-ago levels. Slaughter totals posted over the past four weeks have averaged almost 9.0% below early 2021 rates as the meatpacking industry struggled with Covid-driven worker absences, but that doesn’t seem to explain last week’s kill total falling 81,000 head below the week-prior level. We remain optimistic about the spring-summer hog outlook, but suspect the futures market is getting a bit ahead of itself at this point.
Technical analysis: Given that most contracts made fresh highs again today, bulls clearly hold a short-term technical advantage. Today’s April futures high at $105.275 represents initial resistance, with backing from the August 2021 contract’s low at $105.85 posted by last July. Measured move analysis of the price action posted since the April futures broke above its 40-day moving average Jan. 19 suggests a bullish target at $108.80. Look for tougher resistance to emerge around $110.00. Ten-day moving average support near $145.55 is closely backed by yesterday’s low of $145.225. The 40-day moving average puts pivotal support around $143.05.
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 rose $1.65 to $147.825 after reaching a contract high at $147.925, while nearby futures ended at a six-year high. March feeder cattle rose $1.40 to $168.275.
Fundamental analysis: The bull market run in live cattle futures continued behind solid cash cattle market fundamentals. A bullish raw commodity sector is also attracting fresh speculative buying interest. Active cash cattle trade took place today in southern markets as at least three packers bid $140, according to cash sources. Trade in the north was reported at $140 and at $222 dressed. Those prices are generally steady to firmer than last week’s cash trade. Nearby February live cattle futures are about $2.00 over last week’s five-area live steer average of $139.76, suggesting a firmer cash tone the next few weeks. Choice cutout value early today fell $1.11 at $276.35, the lowest daily average since early January. Movement at midday was 75 loads.
Today’s monthly USDA supply and demand report showed U.S. beef production raised from the previous month as larger expected placements during first-half 2022 are marketed in the latter half of the year. USDA said the increase in fed cattle slaughter is partly offset by lower non-fed cattle slaughter. For 2022, the beef import forecast was raised on strong demand for processing beef; the export forecast is unchanged. Fed-cattle prices were raised for the second half of the year on firm packer demand.
Technical analysis: Live cattle futures bulls have a solid near-term technical advantage. Their next upside price objective is to close April futures prices above solid resistance at $150.00. The next downside objective for bears is closing prices below solid support at $143.00. First resistance is seen at today’s contract high of $147.875, then at $149.00. First support is seen at today’s low of $145.925, then at this week’s low of $145.225.
Feeder cattle futures bulls have a firm near-term technical advantage. Their next upside price objective is to close March futures above resistance at the August high of $171.575. The next downside objective for bears is closing prices below solid support at $162.00. First resistance is seen at today’s high of $168.85, then at $170.00. First support is seen at today’s low of $166.625, then at $165.00.
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.
