Livestock Analysis | March 21, 2024
Price action: A big drop in wholesale prices seemed to undercut hog futures Thursday, with nearby April falling 40 cents to $84.90, whereas the summer contracts fell over $1.00 on the day.
Fundamental analysis: The cash hog market continues its ongoing advance, with the CME confirming Tuesday’s preliminary figure at $83.21, up 39 cents from Monday. Today’s USDA data plugged into the CME calculation indicates the index for Wednesday will rise another 33 cents to $83.54. We still believe the underlying strength of consumer demand is playing a big role in the rise, but the potential favorability of the situation has likely been improved by recent slaughter data. That is, the latest slaughter numbers for the past two weeks have fallen 2.5% and 1.0%, respectively, below comparable year-ago totals. This marks a significant departure from the norm of the past 14 months, when hog slaughter generally averaged about 2% over year-ago levels. If this is a precursor of the spring supplies to be stated in next Thursday’s quarterly USDA Hogs & Pigs report, the reduced production seems likely to amplify the usual spring cash market rally.
Today’s weakness likely reflected wholesale pork losses Wednesday afternoon and again this morning. Today’s midsession drop of $1.67 to $90.51 was largely caused by big pork belly and rib losses. Those are likely to prove temporary since the seasonal reduction in hog supplies, as well as the traditional demand surge for ribs (for grilling) and bellies (BLT’s) are still mostly in the future. A lull in wholesale demand during the run-up to Easter, when hams tend to dominate, may extend short-term weakness. But, again, such weakness in grilling cuts and pork bellies seems likely to be a temporary phenomenon.
Technical analysis: Bulls still hold the short-term technical advantage in nearby April hog futures. Today’s dip had bears testing major support at the 40-day moving average around $84.55, but bears would need a decisive drop below that level to confirm a coming breakdown. Still, having prices sink below that level would have bears targeting the March 11 low of $83.15, then the psychological $80.00 level. Expect initial resistance at the 10-day moving average near $85.25, with backing from today’s high at $85.625 and the 20-day moving average near $85.68. A push above that area would reopen the door to a test of last Friday’s high at $87.525, then the psychological $90.00 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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.
Price action: April live cattle rose 57 1/2 cents to $188.375. May feeder cattle fell 72 1/2 cents to $258.075. Both markets closed near their mid-ranges.
Fundamental analysis: The cattle futures markets are in a pause mode late this week, awaiting Friday afternoon’s monthly USDA Cattle on Feed report.
Cash cattle market fundamentals continue to favor the bulls. Traders expect cash cattle prices to strengthen again this week, with most negotiations likely occurring Friday afternoon after the feedlot inventory report. USDA reported 498 head of various grades changed hands at $186.00 in Kansas Wednesday. However, 851 traded at $190.00 in Iowa. That suggests packers are going to have to pay up for cattle again this week. However, the latest weekly livestock slaughter reports indicated steer dressed weights rose another 3 pounds to 822 pounds/head two weeks ago. This points to producers losing currentness in the feedlots and rendering the market vulnerable if/when packers gain leverage in price negotiations.
The noon report today showed Choice-grade boxed beef cutout value rose another $1.04 to $314.48, while Select grade also rose $1.04 to $303.75. The Choice-Select spread is presently $10.73. Movement at midday was 49 loads.
Cattle traders and producers are watching the weather forecast for the Plains in the coming days. World Weather Inc. today said two rounds of snow are expected in the first week of the outlook. The first round will occur today and will likely involve a significant band near the border of North Dakota and South Dakota. The second and more notable snow event is expected late Saturday into Monday. “This system will have the potential to make travel nearly impossible in some areas, with the greatest and most significant snow possible in the southeastern part of the region. Both snow events will lead to rises in livestock stress,” said the forecaster.
Technical analysis: The live cattle futures bulls have the overall near-term technical advantage. A 3.5-month-old price uptrend is in place on the daily bar chart. The next upside price objective for the bulls is to close April futures above solid resistance at the March high of $190.275. The next downside technical objective for the bears is closing prices below solid technical support at $184.475. First resistance is seen at today’s high of $189.425 and then at $190.275. First support is seen at this week’s low of $187.20 and then at $186.000.
The feeder cattle bulls also have the overall near-term technical advantage. However, a three-month-old uptrend on the daily bar chart has stalled out. The next upside price objective for the feeder bulls is to close May futures prices above technical resistance at the February high of $263.125. The next downside price objective for the bears is to close prices below solid technical support at $250.675. First resistance is seen at today’s high of $260.60 and then at $262.00. First support is seen at this week’s low of $256.50 and then at $255.00.
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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.
