Livestock Analysis | March 6, 2024
Price action: April lean hog futures closed 17.5 cents lower at $85.00, though the various contracts settled well off session lows.
Fundamental analysis: Traders continue to actively reduce premiums to the CME lean hog index, indicating a short-term pessimistic view of the hog market that we feel is overdone. After lackluster gains late last week and to start this week, gains in the CME lean hog index have rebounded to more seasonally-normal gains. The index is up 46 cents to $80.87 today (as of Mar. 4) and the preliminary calculation puts the index up another 44 cents to $81.31 tomorrow. That narrows the premium that April futures holds to the index to just $3.69, as of today’s close. An early start to the grilling season thanks to unseasonably warm weather and an early Easter are likely to continue to support cash fundamentals as prices remain well above a year ago in both the index and wholesale pork.
After falling for two consecutive days, wholesale pork prices were up at midsession, with cutout rising 29 cents to $91.72. Gains in butts and bellies offset drops in ribs and hams. Movement has recently ticked up, indicating packers are using higher pork prices to offload inventory, though grocers have underpinned prices, showing robust demand.
Technical analysis: After opening lower and driving prices lower into mid-morning, buyers underpinned April futures, closing prices nearer session highs. Bulls continue to retain the technical advantage, though recent selling efforts have challenged that advantage. Bulls managed to close prices over former initial resistance (and now initial support) at $84.95, the 20-day moving average, marking that as an important pivot on Thursday. Bulls are targeting uptrend line resistance and the 10-day moving average at $85.75, which is backed by $86.625. Bulls are ultimately targeting last week’s high close at $88.075. Meanwhile, added support comes in at $84.625, today’s low of $83.875, then the 40-day moving average at $83.20.
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 soymeal needs covered in the cash market through March.
Price action: Cattle futures set back Wednesday, but the uptrend remains intact. Nearby April live cattle slid 75 cents to $187.25. Nearby March feeder futures dropped $1.275 to $251.025, while most-active April fell $1.30 cents to $255.875.
Fundamental analysis: Reports of light Monday trading at $178.00 in Texas seemed to undercut the market at today’s opening, but bears couldn’t sustain the downward pressure. The subsequent firmness at least partially reflected news of light trading at $183.00 in Iowa yesterday, which was essentially even with last week’s market. There is little reason to expect weakness at this point, especially with seasonal factors pointing higher. That is, supplies of fed cattle are likely near their annual lows, especially after producers got their marketings very current in late February. Conversely, grocers are almost surely buying beef quite aggressively at this point, since they’ll probably be actively featuring beef in early April. Indeed, with Easter arriving on March 31 this year, and weather across the nation being relatively warm, the grilling season seems likely to get off to a roaring start. And while choice beef cutout did dip $1.51 to $304.79 at noon today (while select cutout skidded 30 cents to $294.87), Tuesday’s closing quotes were extremely high for this time of year. That obviously reflects the cyclical and seasonal tightness of cattle and beef supplies, but we think it also serves as a testament to the current strength of consumer demand.
Technical analysis: Bulls still own the short-term technical advantage in April live cattle futures. Bears couldn’t penetrate initial support at the contract’s 20-day moving average near $186.68. If they prove able to force a close below that level, it would open the door to a test of the 40-day moving average near $182.75, then the psychologically important $180.00 level. But we would point out that price action since Feb. 20 has seemingly formed a “diamond formation’” on the chart, which is usually seen as a continuation sign for the larger trend. Stiff resistance persists around the $189.00 level, which likely stems from the chart gap between $190.275 and $189.10 posted when the market broke down last October 23. A push above that gap would have bulls targeting the $195.00 area.
While recent action in April feeder futures has been mostly sideways, bulls still hold the short-term technical advantage in that market as well. For the third time this week, bulls proved unable to sustain a push above initial resistance at the contract’s 10-day moving average near $257.025. Today’s high marked added resistance near $258.05, with further backing coming from Feb. 26 high of $260.80. A move above that point would make the $265.00 level bulls’ next target. The 20-day moving average represents initial support near $254.74. That‘s backed by last Thursday’s low of $251.975, then by 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 soymeal needs covered in the cash market through March.
