Livestock Analysis | November 30, 2023
Price action: February lean hog futures rallied $1.375 to $71.475, settling near session highs, though nearby December futures fell 20 cents to $68.775.
Fundamental analysis: Lean hog futures continue to surge in deferred contracts as recent selling was overdone, with February nearly closing the gap created by last Friday’s dive. Despite this week’s surge in futures, cash fundamentals continue to weaken, as the CME lean hog index fell 13 cents to $71.53 today (as of Nov. 28). The preliminary calculation for yesterday (Nov. 29) puts the index down another 18 cents to $71.35, despite some relative strength in Tuesday’s calculation. The persistent weakness has weighed on December futures, which have failed to move much higher despite February futures surging over $5.00 from Tuesday’s low. Wholesale pork prices are trading at the lowest level since late spring, with today’s midsession quote falling $1.25 to $82.72. Seasonally growing supplies and wholesale price weakness are spurring grocer buying as packers are moving substantial amounts of pork; movement came in at 171.68 loads this morning.
Technical analysis: February lean hog futures marched higher for the third straight session, closing last Friday’s gap lower. The 10-day moving average did cap most gains today and will stand as resistance at $71.30, with additional resistance at $71.575. Further buying targets the 20-day moving average at $72.475, then $73.25. Bears are aiming to mark the recent buying efforts as profit-taking, seeking to break support at the psychological $70.00 mark with backing from $69.475, then $66.925.
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 December.
Price action: Cattle futures turned lower Thursday, with the expiring December live cattle contract dropping $1.025 to $170.8750 and most-active February tumbling $1.65 to $171.825. Nearby January feeder futures dove $2.25 to $219.95.
Fundamental analysis: Underlying fundamentals for live cattle futures seem quite stable at this point, although this week’s early activity puts the cash average in light trading around $174.75, about $2.00 under last week’s mean. Choice cutout was stated at $297.95, up 92 cents at midsession, while select cutout surged $3.20 to $267.29. These factors would seemingly provide sustained support for cattle futures.
However, other developments may have spurred today’s selling. That was rather obvious in the feeder market, since the CME Feeder Cattle Index was officially quoted at $222.25 Wednesday afternoon. That compares to $226.96 Tuesday and $230.38 Monday (with these prices officially marking the cash equivalent value for the previous business day). Thus, the feeder index has plunged about $8.00 so far this week. We also harbor suspicions that the latest weekly slaughter data (for the week ended Nov. 18) published this morning spurred selling as well. The negative factor was apparently the latest reading for steer dressed weights. After stalling around 927 pounds for the prior four weeks, the reading for the week ended Nov. 11 had climbed to 931 pounds per head, thereby matching the all-time high reached one year ago. Today’s reading for the week ended Nov. 18 jumped another five pounds to 936 pounds/head, which suggests feedlot marketings aren’t as current as previously thought. This is a debatable point, since weights had previously plateaued, Moreover, the choice-select spread is still over $30.00, implying a sustained shortage of well-finished cattle and beef.
Today’s sizeable corn advance probably added to the downward pressure on feeder futures being exerted by the big losses posted in the feeder index.
Technical analysis: Bears tightened their grip on the short-term technical situation in February live cattle, especially after the contract failed at technical resistance marked by the 10-day moving average (near $173.72). Selling at that level is likely reinforced by market action over the past two weeks up to the psychological $175.00 level. A breakout above the latter point would have bulls targeting the $180.00 level. Today’s low confirmed initial support at $170.475 (last Friday’s low), which in turn is backed by psychological support at $170.00. Stronger support likely persists at Monday’s low of $168.625.
Despite the comparative size of today’s feeder cattle drop, the bearish hold on the technical advantage in January feeder futures doesn’t seem as strong as in fed cattle. Today’s action seemingly confirmed initial support at last Friday’s low of $219.15, with added support at today’s low of $217.075. A drop below that point would open the door to a fresh test of Monday’s low at $212.125. Today’s high marked resistance at $222.625, with strong backing from yesterday’s high at $223.575 and the 10-day moving average at $223.60. A close above the latter point would have bulls targeting the psychological $225.00 and $230.00 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 all corn-for-feed and soymeal needs covered in the cash market through December.
