Livestock Analysis | December 6, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: February lean hog futures fell 5 cents to $69.30, while nearby December futures rallied 72.5 cents to $67.55.

Fundamental analysis: Lean hog futures continue to trend lower on the daily chart though they saw limited price movement on Wednesday. Nearby December futures were supported by smaller daily drops in the CME lean hog index, which officially fell 24 cents to $69.60 today (as of Dec. 4). The preliminary calculation puts the index down an additional 17 cents to $69.43 tomorrow. With December futures expiring next Thursday and remaining $2.05 below the index, the contract showed relative strength. If seasonal weakness ramps up once again, expect nearby futures to remain fairly volatile. The outlook remains bleak in the hogs market as supplies are nearing annual highs. After Christmas, demand for hams will drop sharply until next year’s early Easter Holiday. That likely pushes weakness into the new year, as has been the case three out of the last five years.

While the CME lean hog index has consistently put in fresh for-the-move lows, wholesale pork prices continue to trade largely sideways. Wholesale pork prices rose 63 cents at midsession to $85.30, though all cuts but ribs (which only rose 2 cents) and bellies dropped. That likely leaves room for weakness this afternoon, though movement totaled an impressive 209.22 loads. Pork prices remaining above $80.00 despite abundant pork supplies is a testament to how robust retailer pork demand is at this juncture, which continues to lend support to the futures market.

Technical analysis: February lean hog futures traded on both sides of unchanged before slipping lower for the second session in a row. Bears maintain control of the near-term technical advantage. Bulls are looking to hold support at $69.025, $66.925, then last week’s for-the-move low of $65.80. Meanwhile, resistance lies at today’s high of $69.95, the 10-day moving average at $70.45, then $71.60.

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.

 

 

Cattle

Price action: Cash and wholesale weakness sent cattle and feeder futures sharply lower again Wednesday, with expiring December live cattle tumbling $5.05 to $163.45 and most-active February plunging $5.425 to $163.55. January feeder futures dove $4.55 to $210.15.

Fundamental analysis: Cash markets in the Southern Plains and Iowa traded lightly in the $170.00-$171.00 range again Tuesday, which likely convinced futures traders of sustained cash weakness this week and likely into the holiday season as well. On the other hand, the sheer size of the breakdown was probably driven by technical selling and bearish momentum as much as by fundamentally-based pessimism. Indeed, the cash market situation hasn’t changed that substantially from that seen through much of fall. Conversely, Choice cutout fell Tuesday afternoon and lost another $2.31 to $291.44 this morning. That marked the lowest price for high-quality beef since early last April. Select cutout rose modestly, but the Choice/Select spread at $31.73 still points to a relative shortage of choice beef. We suspect the cattle futures complex will find a bottom at some point in the near future, but December futures $6.00-$7.00 under this week’s likely cash average indicates the market is quite pessimistic about short-term prospects.

The latest quote for the CME feeder cattle index edged up to $223.78 Tuesday afternoon, so today’s breakdown put the January contract about $13.50 under the cash equivalent price. But, as with live cattle, feeder futures show little sign of reversing. 

Technical analysis: Bears clearly hold the short-term technical advantage in February live cattle futures. Today’s low implies initial support at the $163.025 level, but that looks tentative. A drop below that point would have bears targeting the psychological $160.00, level, then $150.00. Look for initial psychological resistance at $165.00, with backing from Monday’s and Tuesday’s lows around $166.75. A close above that level would have bulls targeting the psychological $170.00 level and the 10-day moving average near $170.22.

Although bears also hold a strong technical advantage in January feeder futures, it’s not as crushing as in live cattle, because they were not able to force a drop today (with a low of $209.25) below standing support at Monday’s low of $209.15. Still, a follow-through drop would have them targeting $205.00, then $200.00. The Nov. 27 low of $212.13 represents likely initial resistance, but will probably be backed by selling around today’s opening quote of $215.00 and the 10-day moving average near $217.24.

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.

 

 

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