Livestock Analysis | October 25, 2022
Price action: December lean hog futures rose 52.5 cents to $88.45, while deferred contracts also edged higher.
Fundamental analysis: Hog futures rose for the sixth time in the past eight sessions behind strength in cash fundamentals and bullish technicals. Today’s CME lean hog index rose 62 cents to $94.67 (as of Oct. 21), near a four-week high and the seventh increase in the past eight days. Tomorrow’s quote is expected to gain 14 cents. Despite the smaller increase in the index, December futures were still at a $6.36 discount to the cash benchmark, near an eight-month low last week.
Pork cutout values fell $2.84 early today to $99.09, driven by a drop in bellies. This is not prime season for bacon consumption, but bellies not used at this time of year are readily stored for the following summer. Hams retain a firm tone, which should be supportive for the short-term price outlook, especially considering concern over a turkey shortage during the holidays. We expect sustained support from comparatively tight supplies, as indicated by slaughter totals over the past three weeks falling 2% short of year-ago levels and hog weights falling far below fall 2021 levels as well.
Technical analysis: Bulls still hold a technical advantage in December hog futures, although this marked the second straight session in which the daily high and low fell within last Friday’s trading range. This sideways action has negated what looked like the start of huge follow-through to a previously created “bull flag” formation. It doesn’t mean the market won’t continue rising, but it certainly suggests the potential advance won’t be as strong or as quick as the charts had suggested late last week.
Look for initial resistance at today’s high of $89.025, with backing from last Friday’s high at $89.80 and the psychological $90.00 level. A breakout above that point would have bulls targeting the August contract high at $91.35, then the psychological $95.00 level. Today’s low marked initial support at $87.275, with added support at the Oct. 20 low of $86.05, then the psychological $85.00 level. A drop below that point would have bears targeting the 40-day moving average near $82.76.
What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
Price action: December live cattle fell 82.5 cents to $153.30, nearer the session low after hitting a contract high early on. November feeder cattle dropped $1.225 at $177.925.
Fundamental analysis: Cattle futures fell for the first time in seven sessions on corrective selling and profit taking following steep gains over the past week. Strong cash market fundamentals should limit futures weakness. Cash cattle averaged $150.07 last week, up $3.08 from the previous week and the highest since 2015. Showlists are down sharply this week and market-ready fed cattle supplies likely will continue to tighten, which we expect to lead to even higher cash trade this week.
Choice grade cutout values rose $3.95 early today to $261.87. Select grade rose $1.79 to $227.40. The Choice-Select spread widened out to $34.47, reinforcing notions of still-tight cattle supplies in feedlots. Movement at midday was modest at 52 loads.
Technical analysis: Live cattle bulls still hold a solid near-term technical advantage, with a three-week uptrend is in place on the daily charts. Bulls' next upside objective is to close December futures above solid resistance at $158.00. The next downside objective for bears is closing prices below solid support at $150.00. First resistance is seen at today’s contract high of $154.25, then at $155.00. First support is seen at this week’s low of $152.275, then $151.00.
In November feeders, a fledgling price uptrend is in place on the daily bar chart. The next upside objective for bulls is to close November futures above resistance at $182.50. The next downside price objective for bears is to close prices below solid support at $174.00. First resistance is seen at this week’s high of $179.775 and then at $181.00. First support is seen at $177.00 and then at $176.00.
What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
