Livestock Analysis

Posted on Thu, 12/05/2019 - 16:04

Hogs

Price action: December lean hogs closed down $0.30 at $61.575 today, while February futures fell $0.85 at $67.575.

Fundamental analysis: The hog futures bulls just cannot get on track despite some positive underlying fundamentals in the market at present. Cash hog bids rose an average of 71 cents nationally on Wednesday. The pork cutout value Thursday rose by $3.09, led by big gains in bellies. Movement was a moderate 149.82 loads. USDA this morning reported net pork sales of 30,600 MT in the week ended Nov. 28, up 20% from the prior week and 5% better than the four-week average. Mexico bought 10,900 MT and China purchased 10,300 MT. However, shipments slowed 22% from big exports the past four weeks. Also, for 2020, USDA reported net sales reductions of 1,400 MT after China cancelled 8,500 MT.

Recent large kills remain a significantly bearish element for hog futures, and better U.S. pork exports are needed.Average hog weights in the Iowa/southern Minnesota market edged another 0.1 lb. lower the week ending Nov. 30 to 287.0 lbs., still up 5.5 lbs. from year-ago despite record kills.

Banter between U.S. and Chinese negotiators continues with a Chinese Ministry of Commerce spokesperson telling reporters today that officials remain in close contact with their U.S. counterparts, and reiterating tariffs should be reduced proportionally as part of a phase-one trade deal. While there are only 10 days left ahead of the Dec. 15 imposition of further import levies by the U.S., investors continue to see little risk of the increased measures being implemented. Speaking in London yesterday President Donald Trump said again Thursday discussions with China are going well. “We will make a lot of progress,” he said Wednesday.

Technical analysis: The hog market bears have the firm overall near-term technical advantage. Prices are in a seven-week-old downtrend on the daily bar chart. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at $72.00. The next downside price breakout objective for the bears is closing prices below solid technical support at the August low of $63.67. First resistance is seen at last week’s high of $69.32 and then at $70.00. First support is seen at $67.00 and then at $66.00.

What to do: Get current with feed advice. We’re not interested in hedges given volatility in the market.

Hedgers: Carry all risk in the cash hog market for now.

Feed needs: You should have all soybean meal needs covered in the cash market through mid-January. You should be hand-to-mouth on corn-for-feed needs until prices show signs of bottoming.

 

Cattle

Price action: Cattle futures closed mixed today. February live cattle rose $0.425 to $124.60 and January feeders were off $0.325 a $140.55.

Fundamental analysis:  Wholesale beef cutout values were down again Thursday with Choice falling $1.11 and Select down $1.32. Sales at midday were moderately active. It looks like cash markets will be fully steady or better this week after rising $2 to $3 last week.

USDA’s weekly export sales report showed beef sales plunged to 500 MT for 2019 with 2020 sales limited at 11,700 MT. Shipments fell 27% below the prior four-week average.

Full feedyards continue to keep cattle feeders in the selling mode. Exceptional beef demand and record profits keep packers running near capacity. Futures sideways, cash higher and the cutout lower have narrowed the basis and inspired some selling today after steady money.  However, packer competition this week is rising as packers seek to replenish inventory. Cattle inventory gets burned up fast with a kill pace this big in December, increasing the fear about winter storms in January causing some hiccups in supplies when supplies will tighten.

Technical analysis: February live cattle opened lower but quickly turned back to the upside this morning after holding above the November lows. Prices tested but did not close above the 20-day moving average near $125.20. Last week’s contract high at $127.15 remains key overhead resistance. A break above that level would target $130. The past three weeks of sideways price action has eliminated overbought technical signals and leave the market in position to resume the strong rally off the September lows.

What to do: Get current with feed advice. While live cattle futures are showing signs of a short-term top, there’s still more upside potential after the correction.

Hedgers: Fed cattle producers should be out the 25% fourth-quarter hedges in December live cattle futures.  Carry all risk in the strengthening cash market for now.

Feed needs: You should have all soybean meal needs covered in the cash market through mid-January. You should be hand-to-mouth on corn-for-feed needs until prices show signs of bottoming.