Livestock Analysis | November 27, 2023
Price action: December lean hogs rallied 30 cents to $67.875, though deferred contracts faced steep losses, as February futures dropped $1.85 to $66.925.
Fundamental analysis: Nearby lean hog futures were supported by the steep discount to the cash index, though deferred contracts saw losses for the fifth consecutive session as losses in the cattle market weigh on prices. Surging wholesale pork prices, which rose $5.46 at midsession to $89.63, also helped support nearby futures. Gains were led by big gains in the volatile belly and picnic cuts, which will likely pull back slightly in afternoon trade. Movement at midsession was a light 126.91 loads, further indication of a potential pullback this afternoon.
The CME lean hog index fell 30 cents to $73.60 today (as of Nov. 22), a steep $5.725 premium to December futures, which expire Dec. 14. The index is projected to fall $1.27 to $72.33 tomorrow (as of Nov. 24), marking the largest daily drop since early September. Oversold conditions might support futures in the near future, but cash fundamentals continue to point to continued weakness. February futures fell below December futures today for the first time in the contract’s history, pointing to traders’ bearish view of the cash hog situation and sustained weakness in prices throughout the winter months, similar to the late seasonal low seen in early 2023.
Technical analysis: December lean hogs closed slightly higher on the day despite steep losses in deferred contracts. Bulls are looking to hold support at $67.00, with little backing until $66.00, then the Oct. 20 low of $65.40. Bears are looking to hold resistance at today’s high of $68.475, downtrend resistance at $69.00, then the $70.00 mark.
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: February live cattle closed down $2.15 at $168.825, nearer the session low and hit an eight-month low. January feeder cattle dropped $6.525 to $212.80. Prices hit a 10-month low and closed near the session low.
Fundamental analysis: The recent steep downdrafts in the cattle futures markets are mostly technically based and are likely capitulation moves by the speculator bulls. This suggests market price bottoms may be close at hand. However, very worrisome today for the cattle market bulls is the fact feeders sold off so sharply despite solid losses in the corn futures market. That’s a bearish clue more price pressure may be coming.
Cash cattle fundamentals have also weakened recently. Last week’s cash cattle trading averaged $176.77, down $1.05 from the prior week. We look for lower cash cattle trade again this week, given the downdraft in futures prices. The noon report today showed Choice wholesale beef cutout value rose 35 cents to $298.38, with Select grade up $3.33 to $272.09—narrowing the Choice-Select spread to $26.29. Movement at midday was light at 32 loads.
Technical analysis: The cattle futures bears have the strong overall near-term technical advantage. Nine-week-old downtrends are in place on the daily bar charts. However, both markets are now short-term oversold, technically, and due for corrective bounces very soon. The next upside price objective for the live cattle bulls is to close February futures above solid resistance at $178.00. The next downside technical objective for the bears is closing prices below solid technical support at $165.00. First resistance is seen at today’s high of $172.525 and then at $174.00. First support is seen at today’s low of $168.625 and then at $167.00. The next upside price objective for the feeder bulls is to close January futures prices above technical resistance at $225.00. The next downside price objective for the bears is to close prices below solid technical support at $205.00. First resistance is seen at today’s high of $215.00 and then at $220.00. First support is seen at today’s low of $212.125 and then at $210.00.
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 all corn-for-feed and soymeal needs covered in the cash market through November.
