Livestock Analysis | March 8, 2023
Price action: Nearby April hog rallied 95 cents to $85.75 Wednesday but stalled at overhead resistance.
Fundamental analysis: The cash and wholesale pork markets continued climbing Wednesday, with pork cutout surging $1.49 to $88.51. That represented a new high for 2023. As expected, the official CME hog index for Monday came in 18 cents higher at $79.09, with Tuesday’s preliminary figure rising another 21 cents to $79.30. Anticipation of much more of the same is built into spring and summer futures, with the size and timing of the expected rise remaining at the crux of futures trading. We believe the relatively depressed nature of early-2023 prices will establish a demand base that will eventually power a much stronger advance than is implied by summer futures. For example, despite pork production running close to the same levels in the past two years, the hog index had topped the $100.00 level by March 10, 2022, and had reached $86.86 at this point in 2021. Cattle prices were also substantially lower in those years than they are now.
Technical analysis: Bulls seem to hold the short-term technical advantage at this point, but Thursday’s trading could prove pivotal to short-term direction. Bulls proved unable to force a close significantly above initial resistance at the April contract’s 40-day moving average near $85.73, with today’s high marking secondary resistance at $86.175. A breakout above those levels would have bulls targeting the February high at $89.875. Look for initial support near the contract’s 20 and 10-day moving averages near $85.35 and $84.94, respectively, with today’s low marking additional support at $84.225. A drop below that point would have bears targeting the $80.00 level.
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 the end of March. You have all corn-for-feed needs covered in the cash market through mid-April.
Price action: April live cattle fell 52 1/2 cents to $165.45 and near mid-range. May feeder cattle gained $1.95 at $206.15, near the session high and hit another contract high.
Fundamental analysis: Live cattle futures saw more mild profit taking after hitting a contract high Monday. The steady push higher in futures prices, amid low volatility, suggests the market can continue to move sideways to higher. Feeder cattle futures were supported by bullish technicals and a drop in corn futures prices today. The CME feeder cattle index has risen to its highest level since 2015. Very current cattle marketings amid robust consumer demand should also keep cash and futures prices trending up in the near term.
Traders are waiting for the cash cattle trade to develop late this week. Most cash sources expect cash prices to continue to rise. Packers are hoping feedlots will accept steady/weaker prices, but feedlot operators are well positioned to hold out for higher prices again this week. The noon beef report showed Choice grade boxed beef fell another $1.58 to $286.35, while Select dropped 91 cents to $276.58, taking the Choice/Select spread to $9.77.
Cattle traders await the weekly export sales report on Thursday morning. However, the recent appreciation of the U.S. dollar on the foreign exchange market has them worried the stronger greenback will curb overseas demand as dollar-denominated U.S. beef is getting higher-priced in non-U.S. currency terms.
Technical analysis: Live cattle futures bulls have the solid overall near-term technical advantage. Prices are in a five-month-old uptrend on the daily bar chart. Live cattle bulls' next upside price objective is to close April futures prices above solid resistance at $170.00. The next downside technical objective for the bears is closing prices below solid technical support at $163.00. First resistance is seen at the contract high of $166.675 and then at $168.00. First support is seen at today’s low of $164.775 and then at last week’s low of $163.85.
The feeder cattle futures bulls also have the solid overall near-term technical advantage. Prices are in a six-week-old uptrend on the daily bar chart. However, the market is now short-term overbought and due for a downside correction. The next upside price objective for the feeder bulls is to close May futures prices above technical resistance at $210.00. The next downside price objective for the bears is to close prices below solid technical support at $198.00. First resistance is seen at $206.00 and then at $207.00. First support is seen at today’s low of $203.50 and then at $202.50.
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: Cover all soymeal needs in the cash market through the end of March. You also extend corn-for-feed coverage another two weeks in the cash market through mid-April.
