Livestock Analysis | December 5, 2023
Price action: Hog futures remained seasonally weak Tuesday, with the nearby December contract falling $1.225 to $66.825 and most-active February dropping $1.45 to $69.35.
Fundamental analysis: The hog market continues its ongoing seasonal decline. A big reason for the weakness is generally weak consumer demand for most pork cuts at this time of year, although retail demand will surely surge as grocers start featuring hams aggressively for Christmas during the days just ahead. Conversely, wholesale demand for hams will likely crumble by late next week as grocers complete their purchases for the year-end holiday season.
The hog price losses are also being driven by seasonally large supplies, with next week’s total likely to represent the largest of the year. Moreover, with hog supplies apparently increasing on a cyclical basis, despite indications the breeding herd is diminishing, that expansion is also boosting hog and pork supplies. This is a big reason the CME hog index recently slipped below the $70.00 level for the first time since February 2021. The official quote for last Friday fell 74 cents to $69.84, with Monday’s preliminary calculation putting it another 24 cents lower at $69.60. History suggests the cash market will keep slipping into the last week of the year, with potential for a rebound in early 2024. However, the market has also proven comparatively weak during the first quarter in three of the past five years. February futures imply little short-term upside, although we continue thinking consumer demand is proving comparatively strong in response to more aggressive grocer featuring since last summer.
Technical analysis: Bears still own the short-term technical advantage in February lean hog futures, especially with the market turning decidedly lower today after bulls proved unable to force a close above the contract’s 10-day moving average over the past three trading sessions. That puts initial resistance near $70.07, with reinforcement from today’s high of $70.50. Look for stiffer resistance at Monday and Fridays’ respective highs at $71.925 and $72.00, a breakout above the latter would have bulls targeting the 40-day moving average near $73.06. Today’s low marked initial support at $68.90, with successive layers of support extending from the November 24 low of $68.20 down to the Nov. 28 contract low at $65.80.
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: February live cattle futures rallied $1.90 to $168.975, while nearby December futures rose $1.25 to $168.50. January feeder cattle futures jumped $4.175 to $214.70.
Fundamental analysis: Live cattle futures rallied on corrective buying despite continued seasonal cash market weakness. Cash trade started the week off with a whimper, with trade taking place at $171.00 in Kansas, well below last week’s average of $174.45. Recent cash cattle trade has shown southern and northern markets trading near par, contrary to the steep premium northern markets held to their southern counterpart through much of the summer and early fall. Cash trade deviating much from early week weakness will be difficult as precedence has been set for the week. The persistent technical downtrend and weak cash prices are likely to keep a lid on prices this week, barring any significant shift in the marketplace.
Wholesale beef prices were lower at midsession, with Choice falling 91 cents to $294.08 and Select dropping $4.19 to $258.64, sending the Choice/Select spread to a wide $35.44. Movement remains solid at 88 loads, indicating packers have significant amounts of beef to move.
Technical analysis: February live cattle futures rose on corrective selling, though they remain in a steady, 12-week long downtrend. Bulls are eyeing initial resistance at $171.25 with backing from last week’s high at $173.875. Support lies at today’s low of $166.775, Monday’s for-the-move low of $166.625, then downtrend line support at $165.70.
January feeder cattle futures saw profit taking as well, although they also remain in a steep downtrend as bears retain full control of the technical advantage in the market. Bulls are looking to break prices above the 10-day moving average at $218.661, which is backed by $223.575 then $223.80. Support lies under the market at $212.125, then today’s low of $210.175, firmly backed by Monday’s for-the-move low at $209.15. Bulls can point to the contract’s big discount to the CME feeder index, which, at $223.27 is over $9.00 above the nearby futures price.
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.
