Livestock Analysis | December 1, 2022
Price action: February lean hogs surged $3.825 cents to $89.175, the contract’s highest close since Nov. 22.
Fundamental analysis: Lean hogs extended Wednesday’s gains on strengthening technicals and indications of a bottom in the cash market. Sharp declines in grain prices contributed to hog futures’ price strength. The CME lean hog index fell 32 cents to a 10-month low at $83.89 and Friday’s reading is expected to drop another 65 cents. Despite continued weakness in the index, recent strength in national direct prices and wholesale pork have fueled ideas the cash market is near the end of a seasonal slide. Pork cutout values rose 28 cents early today to $87.61, propelled by further gains in hams.
Early today, USDA reported net weekly U.S. pork sales totaling 20,100 MT, down from 45,800 MT the previous week. Mexico led buyers at 11,800 MT, followed by China and Japan at 4,100 MT and 3,000 MT, respectively. Cumulative shipments totaled 1.342 MMT, which lags last year’s pace by nearly 20%.
Technical analysis: February lean hogs traded a $4.70 cent range, turning higher and testing resistance at several technically significant levels, including the 40-day moving average around $87.33, the 100-day moving average at $87.79, as well as the 10-day moving average at $88.1425 and the 20-day moving average near $88.4175. These former resistance levels will now serve up support as strength was held above each one to end the session. Attempts higher will encounter further resistance at the session high at $89.475 as well as $90.00.
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 all soymeal needs covered in the cash market through December. You are now hand-to-mouth on corn-for-feed coverage.
Price action: December live cattle slipped 2.5 cents to $153.05, while the most-active February fell 25 cents to $155.425. January feeders continued climbing, rising 60 cents to $181.075.
Fundamental analysis: Live cattle posted modest declines as strong cash market expectations continued to underpin prices. USDA-reported live steers averaged $154.97 the first three days this week, and while that’s down 40 cents from the week prior figure, the drop largely represents greater activity in the southern markets and a big reduction in sales in Nebraska and Iowa. For example, Kansas trading so far this week was reported around $155.00, unchanged from last week, but the number of animals traded, around 6,300 head, nearly doubled the week-prior total. In contrast, Nebraska steers rose 21 cents to $157.00, but the numbers traded (around 1,000) were about of week-ago trading. We expect the weekly average to continue climbing as trade breaks loose at steady-to-higher levels in the Northern Plains.
Wholesale beef prices continued edging up this morning, with Choice cutout values rising 23 cents to $255.11, the first quote above $255.00 since Nov. 22. Select cutout values jumped $1.97 to $234.51. The Choice-Select spread reached $28.13 at midsession, indicating the supply of well-finished cattle and beef remain in short supply. Conversely, demand remains strong. Average retail beef prices have fallen below year-ago levels and beef stocks sank in October despite aggressive packer activity and surprisingly high steer weights (and a strong seasonal tendency for an October rise in stockpiles). We see robust demand as remaining quite supportive of the cattle/beef outlook.
Technical analysis: Bulls still hold the short-term technical advantage in February live cattle, with the mid-range close in the close vicinity of the 10-day moving average near $155.56 marking it as initial support. The 20- and 40-day moving averages place additional support levels at $154.85 and $154.43, respectively. Today’s high slightly below Wednesday’s top marked the latter level, at $156.10, as initial resistance. Stronger resistance likely persists between last week’s high of $156.95 and the October contract high at $157.225. A bullish breakout would have bulls targeting the $160.00 level.
January feeder futures followed Wednesday’s bullish breakout, with the daily low of $180.05 emphasizing psychological support in the $180.00 area, with strong backing from the 10-, 20- and 40- day moving averages near $179.91, $179.59 and $179.09. Today’s high marked initial resistance at $181.475, with a push above that level potentially opening the door to a test of last week’s top at $183.075, with a followthrough advance likely having bulls targeting the $188.00 area.
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 all soymeal needs covered in the cash market through December. You are now hand-to-mouth on corn-for-feed coverage.
