Livestock Analysis | November 17, 2022
Price action: December lean hog futures fell 60 cents to $84.975, after marking an intraday low just shy of the 100-day moving average.
Fundamental analysis: Lean hog futures ended firmer with the exception of the nearby December contract as persistent cash market weakness curbed buying interest. The CME lean hog index fell 31 cents to $88.22, a nine-month low, and Friday’s quote is expected to drop 8 cents. Wholesale pork remains under pressure as seasonal supplies continue to build, with pork cutout values down $2.07 early today to 93.63, led by a drop of over $7.00 in bellies and a $4.00 decrease in hams. Softer export demand remains a near-term bearish influence. USDA reported net weekly U.S. pork sales of 25,200 MT for 2022, up from 10,800 MT the previous week but under the average of 29,950 MT for the previous four week. Mexico led buyers at 15,300 MT, including decreases of 500 MT.
A Chinese Grains and Oils trading research manager told delegates at this week’s Global Grains Geneva conference that both domestic grain/soy production and imports are expected to increase year-over-year to meet higher demand from the hog sector which is responsible for nearly 50% of the country’s livestock feed demand. The research manager noted that hog-raising margins are likely to remain positive through the 2022-23 marketing year, with the build-up of hog inventories supporting feed demand in an outlook already marked by low soybean stocks.
Technical analysis: December lean hogs traded a $1.50 range in a continued pattern of consolidation, dipping below the 10-day near $85.08. Areas of support remain at the 10-day moving average, as well as $84.86, and the 100-day moving average around $84.63. Attempts to the upside will meet resistance at the 20-day moving average near $84.64, along with $86.23, and $87.60.
What to do: Get current with advised feed 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 and corn-for-feed needs covered in the cash market through November.
Price action: December live cattle rose 95 cents to $152.75, the contract’s highest close since Nov. 10. January feeder cattle leapt $2.50 to $179.975.
Fundamental analysis: Firm cash prices and rebounding beef quotes helped boost live cattle futures, even though cash activity so far this week hasn’t been particularly strong. The five-area direct market average for Monday through Wednesday rose 16 cents to $152.02. However, wholesale beef strengthened, with Choice cutout values rising $1.03 early today to $258.12 and Select rising $1.63 to $232.98. We suspect Choice cutout will soon climb back above the $260 level and possibly $265 as grocers gather inventories for planned beef features over the first weekend in December (which is separate from Thanksgiving weekend this year).
We doubt the latest cash and wholesale news was strong enough to spark renewed bullishness in live cattle futures, so we suspect traders believe those gains presaged more of the same today and tomorrow, and likely through the end of the year. Indeed, having packers paying up for fed cattle prior to Friday’s USDA Cattle on Feed report makes us suspect they’re anticipating bullishly construed results.
Today’s large feeder cattle gains were surprising, especially when viewed within the context of flat-to-weak corn and soymeal futures action. Wheat, soybean and soymeal futures tumbled but corn ended higher. Corn and soymeal markets are more indicative of likely shifts in feed costs, and recent price action appears to bode well for the yearling price outlook as well.
Technical analysis: Today’s action in December live cattle futures seemed to shift the short-term technical advantage to bulls after the advance pushed the nearby contract above former resistance at its 10- and 20-day moving averages at $152.14 and $152.45, respectively. Support at those levels is backed by Tuesday’s low of $151.025, with major backing from the 40-day moving average near $150.35. Look for tentative initial resistance at today’s high of $152.80, with stiffer resistance at last week’s high of $153.425. A push above that level will have bulls targeting the contract high at $154.25.
Bulls have a slight technical advantage in January feeder futures after today’s advance, especially after the contract smashed resistance at the confluence of the short-term downtrend line and the 40-day moving average, which now mark strong support near $178.50. The 20- and 10-day moving average put initial support near $179.75, then $179.32. Tertiary support is likely at Tuesday’s low of $176.325. Initial resistance is marked by today’s high at $180.275. A push above that levels would have bulls targeting resistance extending from Thursday’s high at $181.875 to the late-October high at $182.375.
What to do: Get current with advised feed 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 and corn-for-feed needs covered in the cash market through November.
