Livestock Analysis | January 24, 2024
Price action: April lean hog futures surged $1.70 to $82.025, settling near session highs. Nearby February futures rose 60 cents to $73.90.
Fundamental analysis: Lean hog futures surged higher for the second consecutive day, continuing the recent technical breakout. Prices continue to be supported by firming cash fundamentals as well, which likely fueled Tuesday’s technical strength. The CME lean hog index rose 35 cents to $68.75 today (as of Jan. 22). The preliminary calculation puts the index up another 64 cents to $69.39 tomorrow, which would be up $4.34 from the seasonal low earlier this month. While gains in the February contract have been limited by the premiums seen to the index, April futures have led the surge higher over the past two days. That strength has quickly put April futures almost $13.00 above the latest index quote, showing traders belief that the recent strength in cash market fundamentals is here to stay. Hams are likely to be a large part of that strength, supported by Easter purchases, which comes early this year and does not allow for supplies to build as much as usual.
Wholesale pork prices rose $2.19 to $90.22, which would mark a fresh for-the-move high if gains are sustained through afternoon trade. Gains were led by bellies, butts and hams. Movement was down from Tuesday at 142.7 loads.
Technical analysis: April lean hog futures closed at the highest level in over two months as price continues to break out from the recent consolidation pattern. Prices gapped lower on this morning’s open, but losses were short lived as bulls quickly filled the gap. Bull’s next objective is closing price above the Nov. 13 close at $82.80, $83.00, then $83.55. Meanwhile, support stands at $81.75, the 200-day moving average, $80.375, then $79.425.
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 turned higher Wednesday in apparent response to reports of stronger cash trading in the Southern Plains. Nearby February live cattle futures rose 70 cents to $175.35, while most-active April gained 52.5 cents to $178.35. January feeder futures, which expire at noon tomorrow, climbed 82.5 cents as well, closing at $231.825. Most-active March feeders inched up 12.5 cents to $233.75.
Fundamental analysis: Feedlot cattle may have begun recovering from the cold-stress imposed by arctic conditions over the past two weeks, but that probably hasn’t done anything to boost the supply of market-ready animals at this point. And with packer margins back in the black, they have strong incentives to get cattle bought. Thus, it wasn’t terribly surprising to hear that Southern Plains cattle had begun trading about $1.00 higher, around $174.00, this morning. We suspect Northern cattle will command prices about $1.00 higher than that, especially with the cold having been that much more severe as one moved northward. We tend to expect sustained seasonal strength during the coming weeks, which is also implied by April live cattle futures trading about $3.00 over February. Remember also that fed cattle supplies (and slaughter rates) tend to reach their annual lows in late February and/or early March.
The wholesale market also favors sustained strength. While choice cutout did slip $1.12 to $300.64 at noon today, such high prices are unprecedented for the first quarter. The recent narrowing of the choice-select spread, from routinely trading over $25.00, to $13.70 at midsession today, is largely seasonal in nature. The 10-year average shows the spread tending to peak around $15.80 in late November, then narrowing to about $5.70 in mid-to-late February. Thus, the current spread still implies a relative shortage of choice-grade beef.
This week’s early grain and soybean strength has probably limited gains in feeder futures, since rising feed costs typically discourage feedyard operators from paying higher prices for replacement yearlings. When combined with the latest quote for the CME feeder index at $228.47, this likely made it difficult for bulls to build larger premiums into the nearby contracts.
Technical analysis: Bulls clearly hold the short-term technical advantage in April live cattle futures. The push to a fresh two-month high and high-range close suggest the market is headed higher. Initial resistance at today’s high of $178.425 is backed by psychological resistance at $180.00. A close above that level would open the door to a test of the psychological $185.00 level. Today’s low placed initial support at $177.45, with close backing from the 10-day moving average near $176.13. The 20- and 40-day moving averages mark additional support near $174.79 and $173.25, respectively.
Bulls also own the short-term technical advantage in March feeder futures, although the low-range close suggests resistance at the daily high of $235.425 is rather formidable. Still, a close above that point would have bulls targeting the psychological $240.00 level. Today’s low puts initial support at $233.275, with backing from the 10-day moving average at $230.30 and Monday’s low at $228.75. A drop below the latter point would have bears targeting the psychological $225.00 level and the 40-day moving average near $223.64.
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.
