Livestock Analysis | January 31, 2024
Price action: April lean hog futures gapped lower then rallied from the open, though the contract still lost 7.5 cents on the day to $84.825. Expiring February futures rallied 50 cents to $76.35.
Fundamental analysis: Lean hog futures continue to show relative strength, though they slipped from session highs as near-term overbought conditions limited buying interest and ultimately led prices lower on the session. The CME lean hog index posted it largest daily gain since the seasonal low early this month, rising 88 cents to $71.48 today (as of Jan. 29). The preliminary calculation for tomorrow shows even more robust gains, showing the index up another 90 cents to $72.38. The recent large daily jumps seemingly supported nearby futures, which were previously limited by steep premiums to the index. The acceleration of gains narrowed the premium the February contract holds to the index to less than $4.00. February futures go off the board two weeks from today on Feb. 14.
Wholesale pork prices continue to trade in the upper $80’s as prices prove robust despite packers unloading supplies. Movement surged on Tuesday to 389.6 loads and looks impressive again at midsession at 189.0 loads. That is supportive of futures as it shows continued robust demand from retailers, despite Lent being just a couple of weeks away. Cutout rose 33 cents at midsession to $88.88, led higher by a rebound in bellies. Slaughter continues to run above both week ago and year ago, indicating supplies are likely to remain high in the near future.
Technical analysis: April lean hog futures saw action on both sides of unchanged before closing modestly lower. Bulls continue to control the near-term technical advantage, targeting a daily close above Tuesday’s high of $85.925. Further resistance stands at $86.05, then $87.075. Meanwhile, support stands at $84.00, $83.55, then the 10-day moving average at $82.15. Prices are short-term overbought, which could incite some corrective selling, though the overarching trend remains higher.
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 soybean meal needs covered in the cash market through February.
Price action: Nearby February live cattle futures ended Wednesday having sunk 67.5 cents to $177.35, while most-active April dropped $1.05 to $180.70. Nearby March feeder futures fell $1.175 to $240.15.
Fundamental analysis: The fundamental cattle situation remains supportive, with production slipping toward annual lows in February or March and demand apparently remaining solid despite significant annual increases in retail beef prices. Feedlot cattle are likely recovering from the great stress inflicted by arctic conditions in early-to-mid-January. However, history, particularly that of February 2021, suggests weights will not rebound all that strongly from the big reductions caused by the frigid weather. Thus, the supply situation and the number of market-ready feedlot cattle seem unlikely to improve in the short term, especially if the Plains are hit by another bout of wintry weather in the near future. Cash prices look likely to move higher again this week.
Meanwhile, consumer demand is apparently holding up well. After having dipped below $280.00 in early January, choice cutout is currently hovering just below $300.00. Meanwhile, select beef values have risen sharply. They traded around $258.00 in early January, but reached $289.13 last Friday. The choice-select spread has narrowed to just $8.80 at noon today. One might be tempted to cite the narrowing spread as an indication of lost feedlot currentness in marketing their animals, but it largely reflects a strong seasonal tendency in that direction. For example, the 10-year average for the choice-select spread narrows from around $17.00 in early November to about $5.50 in mid-February. We regard the recent narrowing as indicating strong demand for lower-quality beef, as well as a comparative shortage of smaller, select-grade animals after cattle weights reach their annual highs in late fall and early winter. The spread begins widening again in late winter as marketings of calves placed last fall accelerate (and increase the supply of select-grade animals).
Today’s fed cattle weakness likely weighed on feeder futures as well, although the current resurgence in the feeder index is probably encouraging buying. That is, the index routinely hovered around the $225.00-$228.00 range during mid-January but turned sharply higher last week. The latest quote, for Monday, jumped $2.13 to $236.28. Today’s soybean firmness may also have encouraged selling, although the grain markets remained weak.
See Evening Report for results and commentary stemming from today’s USDA Cattle inventory report.
Technical analysis: Bulls still hold the short-term technical advantage in April live cattle futures, with prices seeming to have formed a pennant formation on the chart. That suggests a fresh bullish breakout may be looming. Conversely, a drop below this week’s early range might open the door to follow-through selling. Today’s action confirmed recent support around today’s low of $180.55, with psychological support likely at $180.00. A breakdown below that point would have bears targeting the contract’s 10-, 20- and 40-day moving averages near $179.44, $176.84 and $174.22, respectively. Resistance at yesterday’s high of $181.88 is proving rather stubborn, especially after the contract turned lower from $183.45 Monday. A close above the latter point would open the door to a test of $185.00, then $190.00.
March feeder futures have traded mostly sideways since reaching $241.65 last Friday, although bulls still own the short-term technical advantage. A close above that point would have bulls targeting $245.00, then $250.00. Tuesday’s low apparently marks solid support at $238.025, with close backing from the 10-day moving average near $236.12. A drop below that point would have bears looking to the 20-day moving average near $231.39, then $230.00.
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 soybean meal needs covered in the cash market through February.
