Livestock Analysis | November 8, 2023
Price action: December lean hogs broke lower today, falling $1.40 and settling at $71.50.
Fundamental analysis: Lean hog futures were unable to overcome early morning selling pressure despite a strong bounce in the CME lean hog index. Following today’s modest rise of 4 cents to $76.27 (as of Nov. 6), the preliminary calculation for tomorrow’s index quote leapt 42 cents to $76.69, which would be the largest rise since Sept. 21 if confirmed tomorrow. Futures traders have been anticipating an early end to the seasonal downturn in the index, but so far, it has been a “buy the rumor, sell the news” event. Sustained strength in the index will be difficult to ignore if the index does indeed confirm an earlier seasonal low than the past few years, though plenty of time remains before the December futures’ contract expiration on Dec. 14.
Futures traders seem to be more concerned about wholesale pork prices, which continued yesterday’s drop at midsession. Cutout fell 99 cents to $86.78, though that remains well inside the recent sideways range that has captured most of the price action for the past three weeks. Bellies led the way lower, down $21.69 from Monday’s closing price. Movement at midsession was a firm 177.13 loads, indicating packers have substantial inventory to move.
Technical analysis: December lean hog futures broke below the uptrend line stemming from the October low. Bulls attempted to break back above prior support line, now resistance at $72.85, though they ultimately failed as sellers took hold of the market. Bulls managed to keep prices above 40-day moving average support at $71.25, which coincides with the 10-day moving average. Further support lies at the 20-day moving average at $70.75, backed by last week’s low of $69.95. Bears are seeking to defend resistance at $72.85 on another test, which is backed by further resistance at $73.075, then Tuesday’s high of $74.275.
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 all corn-for-feed and soymeal needs covered in the cash market through November.
Price action: Cattle and feeder futures rebounded from big early losses, with nearby December live cattle closing 62.5 cents higher at $179.40. Expiring November feeders jumped $2.325 to $234.55, while most-active January surged $1.95 to $232.775.
Fundamental analysis: The livestock complex followed through on Tuesday’s big losses in early Wednesday trading, but bears couldn’t maintain the drop to fresh five-month lows in nearby December fed cattle futures, which likely triggered short-covering and fresh speculative buying across the complex. Moreover, with cash cattle having traded at almost $185.00 last week, having the nearby contract trade under $179.00 probably looked cheap to those in the industry. Such considerations were amplified by Tuesday’s choice-select beef price spread at $30.90, virtually double the seasonal norm for this time of year (since that implies the supply of high-quality beef is extremely tight).
That spread did narrow to $28.41 at noon today as choice cutout fell $1.60 to $298.78, whereas select cutout bounced 89 cents to $270.77. That marked the first-time choice cutout has fallen below $300 since early October. Choice cutout was clearly much higher last summer, with the peak quote of $343.09 challenging the 2021 high of $348.03, but far short of the spring 2020 spike to a record high at $475.39. Still, recent quotes have set records for this time of year. Nevertheless, while grocers have apparently been passing a sizeable portion of recent wholesale gains on to consumers (we’ll see the latest retail data when the CPI is released next Monday), domestic demand has seemed quite robust given the circumstances. Tight cattle and beef supplies, as well as that demand strength, suggest the cattle market will hold up well in the days and weeks ahead.
Feeder futures put in a strong performance today, which likely reflected live cattle gains as well as the surprising reversal posted by soybean and meal futures (whereas the corn market maintained a significant portion of its midsession gains into the close). On the other hand, nearby feeder futures begin to look somewhat underpriced when one notes the latest quote for the feeder index at $238.89. The November contract expires next Thursday (11/16), making its discount look rather extreme.
Technical analysis: Bears apparently hold the short-term technical advantage in December live cattle futures, with psychological resistance at the $180.00 level being backed by today’s high at $180.425, then the short-term moving averages (i.e. 10-day = $181.98, 20-day = $183.07, 40-day = $185.82). Today’s opening essentially matched yesterday’s close at $178.60, marking initial support in that area. Look for stronger support at the Oct. 24 low of $177.30, then today’s low at $176.625.
Bears also maintain the short-term technical advantage in January feeder futures, although today’s price action looks like a ‘hammer’ reversal signal on its candlestick chart. Look for initial support at yesterday’s low of $230.20, with reinforcement from the psychological $230.00 level. Stronger support is likely at today’s low of $227.425, with a drop below that point having bears targeting the psychological $225.00 level. Today’s high marked initial resistance at $233.20, with a layer of stiff resistance likely to emerge between late-October lows around $235.00 and the 10-day moving average near $236.46. Look for added resistance around the psychological $240.00 level.
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 all corn-for-feed and soymeal needs covered in the cash market through November.
