Livestock Analysis | December 21, 2023
Fundamental analysis: The hog index has apparently stabilized. As expected, Tuesday’s quote was officially stated at $66.54 this morning, up 17 cents from Monday’s latest 2023 low at $66.37. Wednesday’s preliminary figure edged up another 9 cents to $66.63. We still tend to think it will dip again between Christmas and New Year’s, which has been a common occurrence in recent years.
Seasonally large supplies were indicated by last week’s U.S. hog slaughter total reaching a fresh high at 2.689 million head when the preliminary figure was published last Friday. However, Monday’s downward revision to 2.682 million pulled it below the high posted the week after Thanksgiving (2.686 million) and the total for the week ended Jan.14 (at 2.688 million). It will be interesting to see this week’s total, since the four-day sum is estimated at 1.936 million head, up 22,000 from last week. The weekly total will reflect packers’ varying decisions about having workers remain aggressive into the Christmas holiday Saturday, or whether some give workers a little extra time off by cutting back that day. Meanwhile, current pork demand from retailers is likely proving comparatively weak, with buying for the holiday season completed and grocers unlikely to be buying aggressively for early January at this juncture.
We suspect today’s modest divergent futures moves may also have stemmed from traders evening up positions ahead of Friday’s quarterly USDA Hogs & Pigs report. The current consensus indicates the industry expects hog supplies to dwindle both seasonally and cyclically in early 2024.
Technical analysis: Bears still own the short-term technical advantage in February hog futures, but today’s action testified to their weakening grip. Bears couldn’t mount a serious challenge of strong technical support at the intersection of its 10- and 20-day moving averages around $69.60. Today’s low marks initial support at $70.125, indicating considerable psychological support near $70.00. On the other hand, a breakdown below the short-term moving averages would reopen the door to a test of last week’s low of $66.225. Expect initial resistance at today’s high of $71.25, with a push above that level likely having the bulls targeting 40-day moving average resistance at $72.14. A close above that point would open the door to a test of the $75.00 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 January.
Price action: February live cattle fell $1.625 to $168.675 and near the session low. March feeder cattle closed down $2.375 at $223.375, near the session, although it hit a four-week high early on.
Fundamental analysis: The live and feeder cattle futures markets today saw routine corrective price pullbacks following recent good gains. Cash cattle bids have broadly firmed to $170, which would be up $1 to $2 from last week. However, there has not been much movement as of late this morning, despite the higher cash bids. Some cash cattle trading took place yesterday, with USDA reporting 7,189 head (of 80% choice steers) officially changed hands at an average of $170.11 Wednesday. Much smaller numbers of lower-percentage Choice steers took place at $170.00, with 819 heifers sold for an average of $172.65. The stronger heifer quote may bode well for the short-term cash market outlook.
The noon report today showed wholesale beef cutout values up, with Choice gaining $2.28 to $291.41 and Select rising 70 cents to $262.30. Movement at midday was decent at 80 loads. The Choice-Select spread at midday is $29.11.
USDA this morning reported weekly net U.S. beef export sales of 9,700 MT for 2023, down 8% from the previous week but up 44% from the four-week average. USDA reported net sales of 6,400 MT for 2024.
Cattle traders await USDA’s Cattle on Feed Report Friday afternoon, which is expected to show the feedlot inventory up 2.2% from year-ago at 11.950 million head. Analysts expect the data to show placements down 3.8% and marketing 6.7% below year-ago levels.
Technical analysis: The live and feeder cattle futures bears have the overall near-term technical advantage. In February live cattle, a three-month-old downtrend is still in place on the daily bar chart. However, more gains in the near term would negate the downtrend and suggest a market bottom is in place. The next upside price objective for the bulls is to close February futures above solid resistance at $175.00. The next downside technical objective for the bears is closing prices below solid technical support at the contract low of $160.825. First resistance is seen at this week’s high of $171.00 and then at $172.00. First support is seen at this week’s low of $167.95 and then at $166.925.
In March feeder cattle futures, a three-month-old downtrend on the daily bar chart has been negated. Recent gains suggest a market bottom is in place. The next upside price objective for the feeder bulls is to close March futures prices above technical resistance at $232.20. The next downside price objective for the bears is to close prices below solid technical support at the contract low of $209.25. First resistance is seen at today’s high of $226.85 and then at $228.00. First support is seen at this week’s low of $222.45 and then at $221.00.
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 January.
