Livestock Analysis | April 3, 2024
Price action: June lean hog futures surged $1.025 to $104.75, while nearby April futures jumped $1.425 to $87.975.
Fundamental analysis: Lean hog futures surged higher Wednesday, building on cash fundamental strength. June lean hog futures closed higher for the third consecutive session. The broader market saw “risk-off” days to start the week and lean hog futures showed relative strength, despite falling outside markets. Strength returned to risk and agricultural commodities alike today, which further bolstered hog market gains. The resilience that lean hog futures have shown in the face of heavy selling in the cattle market is a testament to the strength of the hog market. The CME confirmed a 14-cent gain to $84.92 in the lean hog index today (as of April 1), while the preliminary calculation puts the index up another 23 cents to $85.15 tomorrow, though volume in the negotiated market was light. April futures hold a hefty premium to the index after today’s surge in the contract, which could limit buyer interest until reciprocal strength is seen in the cash market. After surging to a fresh for-the-move high yesterday, wholesale pork prices slipped $1.51 to $95.62 this morning, with weakness seen in each individual cut. Volume firmed to an impressive 170.23 loads, well above the midsession totals in the last two days.
Technical analysis: June lean hog futures surged to a fresh contract high and marked a contract high close. Bulls retain full control of the near-term technical advantage and closed prices above prior uptrend line resistance, which will now mark initial support at $104.00. Additional support lies at $103.725, the 10-day moving average, currently at $102.4, then $101.60. Meanwhile, bulls are seeking to overcome resistance at $104.80, the psychological $105.00 mark, then the contract high at $105.725.
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: After dipping to fresh two-month lows, nearby fed cattle future ended Wednesday slightly above the midpoint of the daily range. Nearby April cattle sank 85 cents to $180.925, while most-active June sagged 77.5 cents to $175.60. Feeders remained under downward pressure, with the expiring April contract dropping $2.55 to $240.95 and May falling $2.275 to $252.575.
Fundamental analysis: Cattle market news maintained its generally bearish bias Wednesday morning. For example, after Tuesday’s reports indicated 276 head of Iowa cattle had traded at $190.00 Monday, this morning’s release showed over 600 head changed hands in Iowa at $185.00 yesterday. Talk of that big drop probably triggered today’s early dive.
The wholesale market didn’t help the bullish cause either. Choice cutout slid $1.69 to $302.51 at midsession, while the select cuts sagged $1.15 to $297.94. The more bearish aspect of the wholesale weakness stems from the narrowing of the choice-select spread to just $4.57, whereas it traditionally bottoms around $6.00 in mid-February, then widens to over $20.00 in late spring. This suggests the packing industry cutbacks that caused steer weights to surge during late winter are also creating a comparatively excessive amount of choice-grade product, thereby weighing on prices.
The feeder index has dived lately. After having stabilized just above $250.00 in late March, it tumbled to $248.99 Monday, then to $247.17 yesterday. Monday’s plunge in nearby feeder futures anticipated the breakdown, but one has to wonder if the discounts now built into those contracts is excessive.
Technical analysis: Bears now own the short-term technical advantage in June live cattle futures, but today’s action didn’t help their cause, since the nearby contracts rebounded significantly after dipping to fresh 10-week lows around midsession. The early drop established strong support at the daily low of $173.75, with likely initial support emerging between Tuesday’s and Monday’s lows of $174.45 and $174.15, respectively. Expect psychological support at the $170.00 level. Meanwhile, today’s high marked initial resistance at $176.775, with backing from yesterday’s top at $177.50. A breakout above that point would have bulls targeting the psychological $180.00 level.
Bears still own the short-term technical advantage in May feeder futures as well. Price action seemed to create a zone of initial support between Monday’s low at $240.85 and today’s low at $240.375. Expect psychological backing at $240.00, with further backing from January highs around $239.00. Today’s high at $245.25 seemingly represents the bottom edge of a zone of resistance extending up to last Tuesday’s low of $245.425. Added resistance at the 10-day moving average near $249.75 will probably be strongly reinforced by psychological resistance at $250.00.
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.
