Livestock Analysis | October 3, 2023
Price action: Pessimism about the fourth-quarter outlook undercut hog futures Tuesday, although the expiring October contract edged up 12.5 cents to $79.975. Most-active December futures fell 42.5 cents to $69.075.
Fundamental analysis: The cash hog and wholesale pork markets have not proven particularly weak to start this week. For example, after officially tumbling 74 cents to $84.84 last Friday, the CME hog index unofficially fell ‘just’ 29 cents to $84.55 Monday. That comparatively firm cash quote with less than two weeks until the October contract’s expiration next Friday (10/13), likely elicited buying in that contract. Bulls were likely encouraged by the midsession wholesale report as well, since pork cutout rebounded 98 cents to $97.02.
But concurrent losses in cattle and feeder futures, as well as persistent equity market weakness as the U.S. dollar climbed to a fresh 11-month high probably amplified the selling in deferred hog futures. That is, traders clearly expect the traditional seasonal drop experienced during the fourth quarter to be quite substantial again this year. That’s likely based on ideas forthcoming hog slaughter will average at least 1% over year-ago levels in response to last Thursday’s USDA Hogs & Pigs report. The drop may prove somewhat smaller than expected due to increased grocer featuring of pork, thereby boosting consumer demand, and relatively low supplies of hams stored for the year-end holiday season.
Technical analysis: Bears own the short-term technical advantage in December hog futures, especially after Monday’s gap on the way to lower levels seemed to mark the start of a downward followthrough from a “bear flag” formation. Today’s low put initial support at $68.425, with little obvious backing above the May 18 low of $67.325. A drop below that level would have bears targeting the psychological $65.00 level. Look for initial resistance at Monday’s low of $69.325, with backing from the psychological $70.00 level and today’s high of $70.20. Look for stiffer resistance at yesterday’s gap between $71.375 and $71.775.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
Price action: December live cattle futures fell $2.70 to $185.65, while nearby October futures dropped $2.30 to $182.125. November feeder cattle futures led the complex lower today, plunging $5.35 before settling at $250.35. Nearby October futures dove $4.725 to $248.60.
Fundamental analysis: After trading in the same sideways range for over two weeks, live cattle futures succumbed to intense selling pressure Tuesday in a move that has negated much of the recent bullish momentum. Treasury yields, particularly longer-term treasury yields, continue to make new highs almost daily. When paired with rising oil/fuel costs and a surging U.S. dollar index, concerns over both domestic and foreign demand arise, which are not helped by record retail beef prices across the U.S. Rising yields and floundering outside markets, evidenced by the S&P 500 falling to the lowest level since June, put pressure on financial institutions to tighten risk parameters, which can often lead to the forced exit from less liquid/higher risk markets, such as cattle futures. These factors weighed on the cattle futures market today, sending prices sharply lower.
Very little cash trade took place Monday, though reports circulated today of trade taking place in the south at $182.00. While that is below last week’s cash average at $183.64, it is supportive of potential higher trade in the northern market where supplies are tighter to help bring the average higher. Wholesale beef prices continue to struggle to move Choice much higher than the $300.00 level, as Choice cutout slipped 46 cents at midsession to $302.62 and Select fell 23 cents to $276.75.
Feeder cattle have shown relative weakness to live cattle futures for two weeks now, despite a relatively stagnant corn market. The weakness has put November feeder cattle futures under the feeder cattle index for the first time in well over a year.
Technical analysis: December live cattle futures underwent heavy selling pressure Tuesday and broke an upward trendline stemming from early May. Prices have had a tendency to fade large moves the following day, so a bounce on Wednesday is not out of the question. Bulls are targeting resistance at $187.10 which is quickly backed by $187.70, a daily close above which would indicate a failed breakdown on the daily bar chart. The $185.50 level attracted significant volume today and in the past; a failure and daily close below that level would likely send prices to $182.50 support.
November feeder cattle futures saw heavy selling as well, as prices traded down to the August low. Futures have quickly fallen over $18.00 from the mid-September high as outside markets have dragged prices lower. The August low will remain support near $250.00, failure below which targets $248.00. Bulls are seeking a retracement to $254.75 resistance before tackling the 40-day moving average, currently at $257.15.
What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
