Livestock Analysis | November 15, 2023
Price action: December lean hog futures dropped $1.25 before settling at $71.05.
Fundamental analysis: Lean hog futures slipped as the CME lean hog index is projected to continue its seasonal decline. While the index officially rose 8 cents to $76.13 today (as of Nov. 13), the preliminary calculation puts it down another 7 cents to $76.06 tomorrow, just above the for-the-move low at $76.05. While prices have stabilized recently, the strength has not been enough to continue encouraging traders that a seasonal low will be in place before the December contracts expiration on Dec. 14. While the spread remains a narrow $5.08, it has expanded from $2.70 just a few days ago. Meanwhile, wholesale pork prices continue to trade in the recent sideways range, with the midsession quote falling 17 cents to $87.43, with large gains in picnics and ribs offset by a sharp drop in bellies. While the downside has remained limited below $86.40, bulls cannot garner significant momentum above the $90.00 mark. Barring any sustained strength in the cash market, December futures are unlikely to be able to garner much bullish momentum.
Technical analysis: December lean hog futures slipped for the second straight day and faced sustained selling pressure throughout today’s session. Bulls failed to keep prices above support at $71.75 and the 40-day moving average at $71.41, which will now act as initial resistance. Buying above those levels targets 100-day moving average resistance, which captured nearly all gains in the recent rally, currently at $73.00. Bears are looking to break prices below $71.10, which is backed by $70.625, then the psychological $70.00 level.
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 futures resumed their recovery from last week’s breakdown, with nearby December live cattle surging $1.925 to $177.775 and most-active January feeder futures rising $1.90 to $230.90. The exception was the expiring November contract (which goes off the board at noon Thursday); it fell 62.5 cents to $229.425.
Fundamental analysis: The latest report from the USDA again pointed to minimal activity in the fed cattle markets, with the only Tuesday trading being the sale of 205 Iowa cattle at $178.00. That represents a $2.47 drop from last Tuesday. This sets a negative precedent for this week’s action, but the futures strength experienced this week suggests bears and packers may not have everything going their way. The wholesale market also proved generally weak in early November, as indicated by choice cutout having fallen from $309.28 on Oct. 30 to $295.67 at yesterday’s close. But it bounced $2.61 to $298.28 at noon today, suggesting reemergent strength. The spread between Choice- and Select-grade values was stated at $28.99 at midsession, once again pointing to a significant shortage of well-finished cattle and high-quality beef.
Substantial trading at lower prices seemed possible earlier in the week, which would likely have reflected widespread producer worries about a bearish Cattle on Feed report Friday afternoon. But the sustained futures gains have probably encouraged producers, so they may be willing to hold out for steady-firm prices.
As was to be expected, the feeder cattle index is dropping sharply in apparent response to the recent futures breakdown and to surging soybean meal prices, as well as the late corn bounce. The index (for Monday) tumbled to $228.64 yesterday afternoon and seems likely to keep slipping. On the other hand, November futures, which expire at noon tomorrow, ended the day having fallen ‘just’ 62.5 cents to $229.425, implying traders expect the index to rebound in the days just ahead (Thursday’s quote for the index, to be released Friday, will be the official cash-expiration price for the contract.)
Technical analysis: Bears still own the short-term technical advantage in December live cattle futures, but this week’s advance has put the market at the point where further gains will start shifting it back toward bulls. Today’s high marking initial resistance at $178.10 is backed by the low (at $178.175) reached by the massive Oct. 23 breakdown and by the 10-day moving average near $178.51. A push above that level will have bulls looking to test the psychologically important $180.00 level and the 20-day moving average near $180.17, with the next big target being the 40-day moving average at $183.88. Look for initial support at the Oct. 24 low of $177.30, then today’s low at $175.45, with psychological backing likely at the $175.00 level. A drop below that point would open the door to a retest of last week’s low at $173.15.
Four straight days of gains in January feeder cattle also have bulls looking to tip the short-term technical advantage back in their favor, especially after today’s rally pushed prices above the Nov. 7 low of $230.20. Initial support likely extends from that point down to the psychological $230.00 level, with another band of support extending from today’s low of $228.125 to the Nov. 8 low of $227.425. A drop below that point would have bears again targeting the Nov. 10 low of $223.625. The 10-day moving average near $232.15 represents initial resistance, with strong backing from the Oct. 24 low of $233.875 and the 20-day moving average at $234.99. A breakout above that point would open the door to a retest of the $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.
