Livestock Analysis | February 21, 2024
Price action: April lean hogs closed 30 cents higher to $85.975, though the contract settled near the middle of today’s range.
Fundamental analysis: Lean hog futures continue to consolidate near recent highs, caught between technical resistance and improving cash fundamentals. Lean hogs performed quite well considering the lackluster performance in outside markets today. Equity markets are facing a three-day loss streak, the worst since the start of the year. Aside from the energy market, most assets struggled to close higher today. The cash market has been seemingly justifying big premiums between the CME lean hog index and April futures as the index is posting its largest gains since last summer, when it was surging to its seasonal peak. The index rose $1.05 to $76.80 today (as of Feb. 19) and the preliminary calculation puts the index up another $1.17 to $77.97 tomorrow (as of Feb. 20). The intrinsic calculations of the index show that persistent strength is likely to continue through the end of the week, which is likely to support futures prices.
Wholesale pork prices continue sliding after leaping higher Monday, led by weakness in bellies. Pork cutout fell $1.45 to $90.99 at midsession. Movement remains relatively light considering the recent surge in cutout values, which leads us to believe packer marketings are more current as production has fallen in the last couple of weeks. As the $90.00 level marked significant resistance in cutout, it will be key to see if that level is held as prices are falling.
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: Anticipation of seasonal strength continued supporting cattle futures Wednesday. The exception was provided by the nearby contract. The February live cattle contract slid 42.5 cents to $183.975, while most-active April rose 37.5 cents to settle at $187.70. March feeder futures skidded 2.5 cents to $251.35, while the deferred contracts posted moderate gains.
Fundamental analysis: Cash trading of fed cattle remained virtually nonexistent Tuesday, with the tightness of market-ready supplies encouraging cattlemen to ask for higher prices, whereas packers are likely relying on big purchases over the past two weeks to hold out for a weaker market. Friday’s looming release of the January USDA Cattle on Feed report is probably adding to the standoff. Wire service surveys show industry analysts expect an 11.6% annual drop in feedlot placements to be reported for last month, while expecting January marketings to virtually match year-ago levels at 99.8%. Those numbers imply a February 1 U.S. feedlot population at just 0.1% over the comparable year-ago total. It would seemingly be easy for January placements to top the survey result, which may also encourage packers to hold back on purchases until after the report’s 2:00 pm Friday (2/23) release.
On the other hand, wholesale prices remain strong, with choice cutout rising 84 cents to $298.21 at midsession, while select cutout dipped $2.50 to $285.32. Although these are modestly below recent highs, they remain quite elevated by most historical standards, especially those for winter. We still expect the short-term outlook to hinge upon slaughter rates near annual lows and burgeoning wholesale demand for beef to be featured during grilling season, which kicks off early with Easter on March 31. We think they’ll continue supporting the cattle and beef complex.
After it reached $246.87 on Feb. 12, the feeder index has been slipping lately. The latest quote (for Tuesday) at $242.66 probably explains bulls’ inability to post a gain in nearby March feeder futures, since the latter ended the day almost $9.00 premium to the cash equivalent price. The ongoing slump in corn and soymeal prices at least partially explains the strength in the deferred contracts.
Technical analysis: Bulls still hold the short-term technical advantage in April live cattle futures. Wednesday’s high at $188.90 represents a fresh 3 1/2 month high and likely marks initial resistance. It essentially matched the contract’s highs from Nov. 3, Nov. 2 and the Oct. 23 high at $189.10. That likely marks the lower point in a band of resistance extending to the top of the Oct. 20-23 chart gap at $190.275 (caused by the bearish USDA COF report released Friday, Oct. 20). This includes psychological resistance at $190.00. Today’s low puts initial support at $186.775, with backing from the 10-day moving average near $186.14, then Monday’s low at $185.425. A drop below that point would have bears targeting the $180.00 level once again.
Bulls firmly hold the technical advantage in March feeder futures as well. Today’s low puts initial support at $250.50, with strong psychological backing at $250.00 and at the 10-day moving average near $248.35. The 20-day moving average near $244.72 will likely reinforce psychological support around $245.00. Look for initial resistance at today’s high of $253.45. That’s backed by psychological resistance at $255.00, then the Oct. 12 high of $258.00. A close above the latter point would have bulls targeting $260.00.
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.
