Livestock Analysis | October 11, 2023
Price action: December lean hog futures fell $1.45 to $69.975 Wednesday, while expiring October futures rallied 20 cents to $82.15.
Fundamental analysis: Lean hogs futures bulls continue to struggle garnering bullish momentum, despite contra-seasonal strength in the CME lean hog index. The index (for Monday) fell 20 cents to $82.26 as expected today. The bounce seen in Monday’s single day average (remember the index is a two-day average) was sustained on Tuesday, marking a 14 cent rise to $82.40 in the preliminary calculation for tomorrow’s quote (as of Oct. 10). This spurred nearby October futures, which go off the board Friday at noon, higher on the session as the future remains a discount to the index. This strength did not spill over to most-active December futures though, which continue to price in a steep decline from now until mid-December.
Retailer demand for pork has proved to be quite strong, noting the increase in movement in pork cutout, though prices continue to slip. Wholesale pork prices slipped 38 cents to $92.69 at midsession, as picnics and bellies were the only components to rise. Movement remains quite strong at 215.25 loads. The rise in consumer demand is likely to keep pork prices higher than futures traders seemingly expect, as consumers have shifted a significant part of their demand to pork as retail beef prices remain on record highs.
Technical analysis: December lean hog futures continue to reject off downtrend line resistance as bears retain the near-term technical advantage. Bears are targeting $68.825 support, which is backed by $68.00. Further selling will likely find support at $67.325. Bulls are looking to reclaim support at the $70.00 psychological level before tackling resistance at $71.67, backed by the downtrend line at $72.35.
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: Expiring October live cattle futures ended Wednesday at $184.50, up $1.925, while most-active December jumped $1.975 to $186.975. Meanwhile, October feeder futures advanced $2.225 to $250.175 and most-active November feeders surged $1.65 to $252.00.
Fundamental analysis: Wednesday’s cattle rally seemed to reflect the persistent tightness of market-ready cattle supplies as well as robust demand. That didn’t seem likely at the start of the day, since packers have reportedly bought fed cattle aggressively at lower prices over the past two weeks, but while that may have boosted their ability to operate in the short-term, it probably severely reduced the number of fed cattle available for sale this week. Wholesale beef prices also proved surprisingly weak this morning, with Choice and Select beef cutout values falling $2.29 and $0.35, to $298.77 and $275.80, respectively. But grocers have also been buying beef quite actively this week, with Tuesday’s sales totaling 217 loads and reaching 82 loads in this morning’s trading. Those developments, which essentially confirmed tight supplies and strong consumer demand, along with technical traders’ inability to force a significant follow-through to the early drop to a five-week low in December futures, likely triggered the subsequent rebound.
Feeder futures followed fed cattle higher; they apparently got little help from the grain/soy markets since corn edged higher, at least partially offsetting weakness in the soy and wheat complexes. The fact that the feeder index rose 53 cents to $250.26 likely encouraged buying as well, since the October contract began the day at a discount of over $2.00.
Technical analysis: Wednesday’s strong close tipped the technical balance back to bullish traders, since the December contract settled above its pivotal 40-day moving average near $186.90. A followthrough advance Thursday would further shift the advantage toward bulls, especially if they prove able to force a close above resistance at the Sept. 27 low of $187.725, then the 20-day moving average near $188.58. Initial support at the 40-day moving average is closely backed by the 10-day moving average at $186.78. Also look for solid support at the daily low of $184.25. A drop below that point would have bears targeting $180.00.
Today’s price action favored bulls, but their inability to top initial resistance at the November contract’s 10-day moving average near $252.24 kept the short-term technical balance tipped toward bears. Still, a move above that point would open the door to a test of the 40-day moving average near $257.06. Conversely, initial support extends from the psychologically important $250.00 level down to today’s low of $248.40. A drop below the latter would have bears looking to test the $245.00 and $240.00 levels.
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.
