Livestock Analysis | October 9, 2023
Price action: December lean hog futures fell $1.10 to $72.475 and closed near the session’s midpoint. Nearby October futures fell 35 cents to $81.975 and are set to expire on Friday.
Fundamental analysis: Lean hog futures gapped lower on this morning’s open but rebounded and closed near the highs. The CME lean hog index fell 57 cents to $83.03 today (as of Oct. 5) as the seasonal downturn continues. The preliminary quote for tomorrow is down another 57 cents to $82.46 (as of Oct. 6). The October futures contract is set to expire Friday and will cash settle against the CME lean hog index quote for that date next Tuesday. After last week’s futures rally, the premium October futures held to the index eroded to just 70.5 cents. With daily drops averaging over 40 cents over the past week, that premium proved too slight, encouraging bears to sell the futures market off today. The slight discount October futures see to the index will likely keep pressure on futures in the next week, barring any unexpected turnaround in cash prices in the interim.
Today’s surge in wholesale pork likely helped the turnaround seen in futures. Pork cutout rose $3.91 at midsession to $97.13, the highest level since Sept. 29. The gain largely came in hams as retailers are seemingly stocking up for the upcoming holiday season.
Technical analysis: December lean hog futures continue to trend lower on the daily bar chart. Bulls once again struggled against trendline resistance stemming from the September high. That steep downtrend line will remain resistance at $73.00 on Tuesday and is backed by additional resistance at $73.53 then the $74.62. Bulls are seeking to hold support at $72.16, backed by $71.00, then $68.85.
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 dropped $1.325 to $185.35 and nearer the session low. November feeder cattle fell $1.225 to $249.65 and nearer the session low.
Fundamental analysis: The major flare-up of violence in the Middle East over the weekend cast a pall over the marketplace today and sapped trader/investor risk appetite. That kept the cattle futures market bulls on the sidelines today and such may be the case for the near term, especially if the Israel-Hamas war spreads to other countries. A spike in crude oil prices was a positive for the raw commodity sector today, but the gains in the U.S. dollar index today did mitigate the solid gains in crude oil.
This week, look for cattle futures traders to focus even more closely on what the key outside markets are doing, given the heightened geopolitical tensions that are no likely to abate any time soon.
Overall cash cattle market fundamentals still favor the bullish camp. Supplies of market-ready cattle are expected to remain tight into the end of the year. Cash cattle trade last week averaged $182.72, down 92 cents. The noon report today showed wholesale cattle prices higher, with Choice grade up $1.52 to $303.53, while Select grade rose $1.18 to $276.96, taking the Choice/Select spread to $26.57. Movement at midday was light at 36 loads.
Technical analysis: The live cattle bulls still have the overall near-term technical advantage but have faded. A price uptrend on the daily bar chart has been negated. The next upside price objective for the bulls is to close December futures above solid resistance at the contract high of $192.05. The next downside technical objective for the bears is closing prices below solid technical support at the August low of $181.925. First resistance is seen at Friday’s high of $187.00 and then at last week’s high of $188.00. First support is seen at last week’s low of $184.60 and then at $183.00.
The feeder cattle bulls and bears are on a level overall near-term technical playing field. Prices are trending lower on the daily bar chart. The next upside price objective for the feeder bulls is to close November futures prices above technical resistance at $258.50. The next downside price objective for the bears is to close prices below solid technical support at $240.00. First resistance is seen at today’s high of $251.40 and then at $253.00. First support is seen at last week’s low of $248.675 and then at $247.00.
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.
