Livestock Analysis | February 1, 2024
Price action: Hog futures set back from midweek highs. Nearby February slid 55 cents to $75.80, while most-active April fell $1.075 to $83.75.
Fundamental analysis: After having broken out to the upside on January 23, April hog futures had posted gains for six consecutive sessions before settling slightly lower yesterday. Traders seemed to take that as a signal to take profits and/or establish fresh short positions. The sizeable premiums over the cash index likely encouraged selling as well. Bears may also have been encouraged by the much more modest gain expected for the lean hog index when it’s published tomorrow. That is, the CME confirmed this morning the index jumped 90 cents to $72.38 Tuesday, but today’s data indicates it will rise just 33 cents to $72.71 when Wednesday’s official quote is published tomorrow. Thus, April futures, which began the day over $12.00 higher than the index, proved vulnerable to selling.
Conversely, today’s midsession pork report looked quite supportive. Not only did noon cutout surge $1.35 to $88.91, a $5.00-plus jump in primal ham values, along with significant gains by most other cuts, more than offset a $6.48 dive by pork bellies. Both moves might easily be diminished by afternoon activity, but we regard ham strength as one potentially bullish factor that could power the strength projected by April futures. This would require grocers to buy hams aggressively through mid-March as they prepare to actively feature hams for Easter dinner features. Having Easter arrive relatively early on March 31 is also truncating the time the industry usually has to prepare for the holiday each year. As pointed out in the past, grocers maintained retail ham prices at elevated levels at both Easter and Christmas 2023. Those failed to attract many consumer buyers and undermined the hog and pork complex at both times. A change of approach on their parts, in which they feature hams at lower prices, could provoke a strong demand response this spring.
Technical analysis: Although bulls still hold the short-term technical advantage in April lean hog futures, recent action has weakened their grip. Today’s high confirmed significant resistance at $85.275, with Tuesday’s high marking equally stiff resistance at $85.925. A breakout above that point would have bulls targeting June 2023 highs around $89.00. The daily low established solid support at $82.825, but a drop below that point would have bears looking to test the 10-day moving average near $82.09, then the psychological $80.00 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 soybean meal needs covered in the cash market through February.
Price action: April live cattle rose $2.475 to $183.175, near the session high and hit a nearly three-month high. March feeder cattle closed up $4.725 at $244.875, nearer the session high and hit a 3.5-month high.
Fundamental analysis: The cattle futures markets were supported today by a bullish government report on cattle supplies and by technical buying amid firmly bullish charts. USDA’s semiannual cattle inventory report out Wednesday afternoon showed 87.157 million head of cattle in the U.S. as of Jan. 1, down 1.684 million (1.9%) from a year ago. The beef cow herd dropped 716,000 head (2.0%) to 28.233 million head. The 2023 calf crop was estimated at 33.593 million head, down 847,000 head (2.5%) from last year. The downward revision of the January 2023 heifer numbers was especially bullish for feeders as it implies a smaller breeding herd this year. The percentage reductions on the replacement heifers matched expectations, but those reductions started from a smaller place than was expected (i.e. smaller year-ago totals imply smaller numbers now).
Cash cattle trading has been slow to develop this week. USDA indicated light trading between $175 and $176 Wednesday. The average price was $175.80, which pulled the three-day average up to $175.77, up $1.78 from a week ago. This is still a small fraction of the weekly total numbers likely to be traded. However, big futures gains today strongly suggest the cash average will at least match the three-day figure. The noon report showed wholesale beef values weaker again today, with Choice grade cutout falling 61 cents to $293.93, while Select grade dipped 2 cents to $284.15. Movement at midday was 50 loads.
USDA this morning reported U.S. beef export sales of 16,700 MT in the latest reporting week.
Technical analysis: The live and feeder cattle futures bulls have the firm overall near-term technical advantage. Seven-week-old price uptrends are in place on the daily bar charts. The next upside price objective for the live cattle bulls is to close April futures above solid resistance at $187.50. The next downside technical objective for the bears is closing prices below solid technical support at $176.50. First resistance is seen at this week’s high of $183.45 and then at $185.00. First support is seen at $182.00 and then at this week’s low of $180.425. The next upside price objective for the feeder bulls is to close March futures prices above technical resistance at $250.00. The next downside price objective for the bears is to close prices below solid technical support at this week’s low of $238.025. First resistance is seen at today’s high of $244.65 and then at $246.00. First support is seen at $242.00 and then at today’s low of $240.85.
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.
