Livestock Analysis | February 7, 2024
Price action: April lean hog futures slipped 15 cents before settling at $81.10, settling near session lows.
Fundamental analysis: Lean hog futures surged on this morning’s open, but traders sold the rally and ultimately forced nearby prices lower on the session. February futures dropping below the CME lean hog index and April futures cutting the steep premium previously held by the index apparently spurred dip buyers, though fresh cash fundamental data releases throughout the session apparently weakened their resolve. Bulls’ failure to maintain gains is likely to keep pressure on futures as prices have broken the recent four-week uptrend stemming from the early January lows. After rising 30 cents to $73.86 today (as of Feb. 5), the CME lean hog index is expected to rise just 16 cents to $74.02 tomorrow. That would mark the smallest daily gain since Jan. 12.
Slaughter rates have picked up in the last couple of weeks, most recently noted by last week's kill being up 3.9% above last year. That has led to increased wholesale pork supplies, driving cutout persistently lower. Cutout values at midsession were down $2.67 to $83.56, led lower by a $13.23 drop in bellies, though all cuts except picnics and ribs saw losses. Movement was an impressive 175.7 loads, though it appears grocer demand has diminished and packers are moving supplies by cutting their asking prices.
Technical analysis: April lean hogs closed lower despite trading nearly $2.00 higher midday. Bulls still control the near-term technical advantage though their edge is waning. Resistance stands at $81.50, the 10-day moving average at $82.15, then the former uptrend line at $83.00, which capped gains today. While bulls failed to follow through on this morning’s rally, bears failed to break prices below support at the 20-day moving average for the second consecutive session, which lies at $81.10. A break below that mark targets support at $80.325, then the psychological $80.00 mark.
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: Cattle futures set back Wednesday in the wake of Tuesday’s big surge. Expiring February live cattle slid 77.5 cents to $182.225, while most-active April fell $1.275 to $184.80. March feeder futures dropped $1.125 to $245.55.
Fundamental analysis: Beef packer margins have fallen well into the red lately, which is almost surely discouraging them from buying fed cattle aggressively. However, current conditions aren’t encouraging producers to rush to move cattle, especially with the latest reading for steer dressed weights (for the week ended Jan. 20) tumbling to 918 pounds per head. That compares to the record high of 942 pounds reached just before Christmas and just three pounds over the comparable 2023 level and 6.2 pounds above the five-year average. The dive reflected the severe impact of early-to-mid-January arctic weather on feedlot animals and might be at least partially reversed as those animals recover from those stressful conditions. But a look at history, particularly that of February 2021 when equally severe conditions prevailed, weights did not rise substantially in the following weeks, then quickly resumed their seasonal dive. Cattle prices rose about $10.00 in the two months following the February 2021 arctic blast.
Given the preceding discussion, few can be surprised that early-week cash cattle trading has been nonexistent. Choice beef prices dipped from over $300.00 on Jan. 23 down to $293.08 last week but rebounded to $295.46 at noon today. The Choice/Select spread also widened back out to $10.51. Again, these developments point to a supportive outlook.
Feeder futures also declined today, despite continued declines in corn and soybean meal prices. They were rather clearly following fed cattle lower, but their premiums to the feeder index, now at $239.58 may also have played a role in the slide.
Technical analysis: Bulls hold a strong short-term technical advantage in April live cattle futures in the wake of Tuesday’s big surge. But today’s price action confirmed initial resistance around yesterday’s close of $186.075, with backing from yesterday’s high at $186.575. A push above that point would have bulls targeting the psychological $190.00 level. Today’s low marked initial support at $184.35, which is likely backed by the Feb. 1 high of $183.375, then the 10-day moving average near $182.65. A close below that point would open the door to a retest of the psychological $180.00 level.
Bulls own the technical advantage in March feeder futures as well, with a close above resistance at yesterday’s and today’s highs at $247.10 and $248.25, respectively, likely encouraging bulls to make a run at the psychologically important $250.00 level. Today’s low of $245.05 confirmed support at the $245.00 level, especially since it acted as strong resistance last week. Support is reinforced by the 10-day moving average near $242.28, then the psychological $240.00 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 soybean meal needs covered in the cash market through February.
