Livestock Analysis | January 3, 2024
Price action: February lean hog futures traded on both sides of unchanged before settling 2.5 cents lower to $65.30.
Fundamental analysis: Lean hog futures traded in a volatile session, gapping higher though making a fresh contract low mid-day before bouncing into the close. Outside markets have done little to support hog futures in the past couple of days as the U.S. dollar index continues to trade solidly to the upside and volatility plagues agricultural markets. The uncertainty surrounding the cash market is evidenced by the volatility seen in the futures market. It will take convincing that a seasonal low is in place before February futures move much above the CME lean hog index. The index fell 30 cents to $65.05 today (as of Dec. 29), a fresh seasonal low. The preliminary calculation actually puts the index up 14 cents to $65.19 tomorrow (as of Jan. 2), though further upside will need to happen before traders are convinced of a seasonal low.
After firming to the highest level in three weeks, wholesale pork prices slipped $2.33 at midsession to $82.77. Bellies led the way lower, which is not surprising given yesterday’s surge, though significant drops in picnics and butts contributed to this morning’s weakness.
Technical analysis: February lean hog futures saw action on both sides of unchanged throughout today’s session. Downtrend line support stemming from the October lows limited selling pressure today and will remain support at $64.30, with support at the psychological $65.00 mark on the way. Meanwhile, resistance stands at $65.40, at $66.00, then the 10-day moving average at $68.05.
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: Cattle futures recovered from early losses, with February live cattle closing down just 7.5 cents at $171.85. Expiring January feeder cattle rose 65 cents to $226.07, while most-active March gained 57.5 cents to $227.025.
Fundamental analysis: Tuesday’s surge in fed cattle and feeder futures likely reflected last week’s late strength in cash prices for fed cattle, which pulled the weekly average up to $172.24. Yesterday’s move was made even more impressive by concurrent wholesale market weakness, which pulled choice cutout down $5.37 to $284.34. Indeed, sustained wholesale losses this morning sent choice cutout down another $2.57 to $281.77, although select cutout held up relatively well, thereby narrowing the choice-select spread to $22.53 at noon today. The beef weakness likely caused today’s early futures drop.
However, bullish cash market hopes were reinvigorated by the late-morning report of yesterday’s cash action, which saw over 1,500 fed steers change hands at $175.00 in Iowa and Nebraska. That news likely powered late-session futures gains. Given that strength, which is almost surely a harbinger of broader gains later in the week, the early-week wholesale losses seem unlikely to persist into the weekend.
Feeder futures also suffered early losses but ended the day generally higher. Bulls had strong reasons for anticipating renewed strength, especially after the CME index spiked from last Thursday’s quote at $215.98 to $228.19 as of Friday. As pointed out in the past, direct-market feeder trading is added to the index on Friday, which is why that quote can post huge swings (and why feeder futures always settle on Thursday). Futures strength during the second half of December indicates traders have been expecting a big rebound, but we suspect they were anticipating a smaller, smoother advance. Still, having the index rocket upward has shifted nearby futures from sizeable premiums to moderate discounts.
Technical analysis: Bulls may now be able to claim a slight short-term technical advantage after they proved able to force a close above pivotal resistance (now initial support) at the February contract’s 40-day moving average near $171.57. Look for initial resistance at the Nov. 30 high of $173.68, then at the psychological $175.00 level. A close above that point would open the door to a run at $180.00. Today’s low marked added support at $170.625, which is backed by psychological support at $170.00, then by the contract’s 10- and 20-day moving averages near $169.70 and $168.42, respectively.
Bulls also seemed to gain the short-term technical advantage in March feeder futures with today’s late gains. They apparently face significant resistance between today’s high of $227.25 and yesterday’s top at $227.925. A breakout above that point would have bulls targeting the $230.00 level, then $235.00. The 10-day moving average places initial support near $224.64, which is strongly reinforced by the 40-day moving average at $224.46. Stout support also persists at recent lows around $223.00, with a drop below that level opening the door to a test of the $220.00 level.
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.
