Livestock Analysis | March 23, 2023
Price action: April lean hog figures settled 32.5 cents lower at $75.75, in the middle of today’s range.
Fundamental analysis: Lean hog futures saw action on both sides of yesterday’s settlement today with oversold conditions combating a weak cash market. After the recent 10% decline in futures prices, we saw mild gains in midday pork cutout; it was reported at $80.69, up 83 cents. Despite the strength in cutout this morning, ihe CME confirmed Tuesday’s preliminary hog index quote at $77.83, which was down 84 cents from the day prior. Wednesday’s preliminary figure is calculated at $77.39, extending the decline another 44 cents. While prices have continued their slide recently, we expect grocers to get more aggressive in pricing pork as Lent comes to a close, enticing consumers to switch to pork as the spring grilling season gets into full swing. This demand should spur a bounce in prices, especially from recent oversold levels.
Technical analysis: April lean hog futures traded in a $1.325 range as the market made a new contract low. Prices rebounded to unchanged towards the close indicating an interim low could be in place if the market is able to rally tomorrow. While prices have broken most near-term support, some additional support comes in the $75.00 level which coincides with the Oct 2020 high on the daily continuation chart. Bulls are aiming for resistance at the 10-day moving average which coincides with the recent bar chart support at $79.50, quickly backed by the psychological $80.00 level. Bulls want a daily close over $80 to confirm an interim low could be in place, else bears will target $70.00 below $75.00.
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 should have all soymeal needs covered in the cash market through May. You have all corn-for-feed needs covered in the cash market through mid-April.
Price action: April live cattle futures slipped 15 cents to $162.15 Thursday, while April feeder futures rallied 62.5 cents to $195.00.
Fundamental analysis: The bears’ inability to sustain Wednesday’s April futures’ drop to new lows apparently persuaded packers to pay up for cattle, since active trading reportedly broke loose at steady to higher levels yesterday afternoon. The three-day average for the five-market area rose to $164.26 after beginning the week around $163.00. This latest quote represents an 8-cent increase from the week prior level and a 9-cent rise from last week’s cash average. Given that development, we expect animals traded through the balance of the week to bring higher prices. We also think this presage sustained gains through at least early April. Sustained short-term strength would also reflect yesterday’s rebound in choice beef values, as well as today’s $1.95 follow-through rise to $283.25. The latest steer weight figure actually bounced four pounds to 903 pounds, but that’s still 14 pounds under the comparable year-ago figure. We would also point out that the choice-select beef price spread is now at $13.75, whereas the seasonal norm is around $7.00 at this time. Both of these reflect the shortage of market-ready cattle in feedlots.
Continued corn weakness and another surprising drop in soymeal prices likely boosted feeder futures today. Obviously, the strength in the cash market for fed cattle offered support as well.
Technical analysis: Although bears still seem to own the short-term technical advantage in April live cattle futures, their inability to sustain yesterday’s drop to fresh two-month lows and today’s sideways action seemed to negate what looked like the start of a follow-through drop from a bear flag formation. Today’s low marked initial support at $161.825, with support layered down to yesterday’s low of $160.625 and the psychological $160.00 level. A drop below the latter point would have bears targeting $155.00. Resistance at today’s high of $162.50 is closely backed by the 10-day moving average near $162.60. A push above that area would have bulls targeting the looming confluence of the 20- and 40-day moving averages around $163.85, then the contract high at $166.675.
Today’s price action seemed to slightly shift the short-term technical advantage in April feeder futures to bulls, since bears proved unable to mount a test of support at the 40-day moving average near $193.07 and the contract posted a high-range close. If bears were able to force a close below the 40-day moving average, they would like be targeting the psychological $190.00 level. Today’s high placed initial resistance at $195.025, with close backing from the contract’s 10- and 20-day moving averages near $195.22 and $195.76, respectively. A breakout above the latter level would open the door to a retest of the $200.00 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 should have all soymeal needs covered in the cash market through May. You have all corn-for-feed needs covered in the cash market through mid-April.
