Livestock Analysis | February 14, 2024
Price action: April lean hog futures surged $3.45 to $84.525 and settled nearer session highs. February futures went off the board at noon today, up 95 cents at $75.175.
Fundamental analysis: Lean hog futures surged, negating nearly all of the selling seen over the last two weeks. After four consecutive sessions of choppy sideways trade, bulls garnered enough momentum to confirm our suspicions that a near-term low was in place. The resurgent strength in the CME lean hog index, which rose 41 cents to $74.11 today (as of Feb. 12) and is projected to rise another 49 cents to $74.60 tomorrow, has helped fuel futures gains as traders seemingly believe that the recent weakness in the index has come to an end. This idea is further reinforced by the strength seen in the February contract this morning, which rose 97.5 cents to $75.20 before going off the board at noon today. The contract will cash settle against the CME lean hog index quote for today, which will be released on Friday. Today’s expiration indicates traders believe cash prices will continue rising into the end of the week.
Despite strength in the CME lean hog index, wholesale pork prices continue to struggle against the $90.00 mark. As cutout nears that level, packers take advantage of higher prices to move substantially more pork, noted with Tuesday’s movement totaling 347.4 loads, sharply up from Monday at 223.7 loads. Cutout fell $1.36 at midsession to $85.80, led lower by a $6.00 drop in hams. Movement remained robust at 195.4 loads, which has likely kept a lid on cutout values.
Technical analysis: April lean hog futures broke out of the recent sideways consolidation pattern, reinforcing bulls’ hold on the technical advantage. Bulls’ next objective is closing prices above resistance at $84.90, then the Jan. 30 high of $85.925, with little backing until $87.00. Meanwhile, bulls are seeking to hold support at $83.75, $82.55 then the 10-day moving average $82.00 on resurgent selling pressure.
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: The cattle and feeder complex continued this week’s pullback but rebounded significantly from their daily lows. Expiring February live cattle dropped $1.35 to $182.40 and most-active April fell $1.10 to $184.00. March feeder futures tumbled $1.775 to $246.225.
Fundamental analysis: Continued wholesale weakness is apparently weighing on the cattle and feeder markets, with traders apparently thinking the loss of cutout values will enable packers to force cash prices lower later this week. Indeed, anecdotal reports indicate some Kansas cash trading kicked off around $180.00 today, down about $2.00 from last week, which in turn is likely to be followed by similar slippage in other areas.
Still, a sustained drop is highly debatable, especially after the latest reading for steer dressed weights dove once again and reached a point only slightly above comparable year-ago and five-year average figures. We would also remind readers that weekly slaughter totals are likely to reach some of the lowest levels of the year during the next month. Moreover, weights dropping sharply on a seasonal basis also diminish beef production per head. Still, having choice cutout edge up just 18 cents to $292.45 at noon today, while select cutout dipped $1.18 to $284.12, wasn’t encouraging. This week’s equity market weakness and renewed U.S. dollar strength may also be undercutting bullish cattle ideas, since traders view those developments as negative for beef demand (based on ideas of a weaker economy and reduced export demand).
Technical analysis: Although today’s weakness in April live cattle futures likely encouraged bears, bulls still seem to have the short-term technical edge. The fact that bears couldn’t challenge support at the Oct 24 low of $182.10, much less the short-term uptrend line the psychologically important $180.00 level, offers support for this idea. Today’s low marks initial support at $182.825. Tuesday’s low at $184.75 virtually matched technical resistance at $184.675 extending from the Oct. 25 low, thereby representing initial resistance. That’s backed by yesterday’s high at $185.725, then Monday’s top at $187.575.
Bulls still hold the short-term technical advantage in March feeder futures, especially after bears proved unable to sustain the intraday drop below 10-day moving average near $246.12. Initial support in that area is backed by psychological support around $245.00, then today’s low at $243.55. Initial resistance at today’s high of $248.40, is backed by Tuesday’s and Monday’s highs at $248.975 and $249.90, respectively, and the psychological $250.00 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.
