Livestock Analysis

Posted on Wed, 12/18/2019 - 14:56

Hogs

Advice: We advise livestock producers to extend corn-for-feed and soybean meal coverage another two weeks for each in the cash market through the end of January.

Price action:  February lean hog futures closed up $0.05 at $69.90 today, while April futures lost $0.175 at $77.225.

Fundamental analysis: Buying interest was limited in hog futures today as the pork cutout value fell another $1.45 Wednesday, on solid declines in bellies and hams. Movement was 171.07 loads at midday. Also, February lean hog futures are at a double-digit premium to the cash hog index. However, that’s also a sign of optimism the cash hog market has bottomed out and will work its way higher in the first quarter.

Comments from China’s state planner that it will import more pork and more details from U.S. Trade Representative Lighthizer about the trade accord that could be implemented as soon as February have hog futures traders cautiously optimistic about U.S. pork exports. Still, the markets will need to see actual Chinese purchases to push much above recent highs with many in the trade skeptical China can buy anywhere near the $40 to $50 billion in U.S. ag products the Trump Administration has claimed China has agreed to buy annually. Most estimates still come in closer to $31 to $34 billion.

Focus now is on Thursday morning’s weekly USDA export sales report, and any big purchases that might come from China.

Packers continue to enjoy solid profit margins of $57.60 a head, according to HedgersEdge.com. That’s down a bit from week-ago levels, but still a strong figure.

Technical analysis: The hog market bears have the overall near-term technical advantage, but there are now chart clues that market has put in a bottom. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at $75.00. The next downside price objective for the bears is closing prices below solid technical support at the December low of $65.40. First resistance is seen at this week’s high of $71.00 and then at last week’s high of $71.55. First support is seen at this week’s low of $69.07 and then at $68.00.

What to do: Get current with feed advice. We’re not interested in hedges with the strong export possibilities to China. But traders already have greater-than-normal seasonal rallies built into futures through summer, so there may be a hedging opportunity on a price rally.

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

Feed needs: NEW ADVICE -- Extend corn-for-feed and soybean meal coverage another two weeks for each in the cash market through the end of January. We would view a pullback to the low $3.80s in March corn futures and to $303 in March meal futures as opportunities to further extend coverage.

Cattle

Advice: We advise livestock producers to extend corn-for-feed and soybean meal coverage another two weeks for each in the cash market through the end of January.

Price action: Live cattle futures settled narrowly mixed, with nearbys favoring the upside and deferred months the downside. Feeder cattle futures closed 10 to 82 1/2 cents lower in most contracts, with nearbys leading losses.

Fundamental analysis: After surging to the upside, cattle futures have set back a bit amid some profit-taking and consolidative trade. That said, the market continues to perform well and momentum favors market bulls. We’re encouraged by bears’ inability to force a test of the 40-day moving average.

The downside correction has been driven in large part by a pullback in the boxed beef market. Choice boxed beef fell another $1.63 this morning, with Select down $1.33, and the spread between the values has narrowed to around $9. This will likely limit this week’s cash prospects.

Feeder cattle futures have been pressured by the recent rise in corn and wheat prices as well as softer trade at an Oklahoma City auction of feeder cattle. March futures are trading near in line with the feeder cattle index.

Technical analysis: The 40-day moving average puts important support at $124.615 for February live cattle futures. Under that, the mid-November low of $123.125 and the $122 area offer additional layers of support. The contract climbed to a new contract high of $127.90 on Friday and matched that level Monday, marking that price as key resistance.

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: NEW ADVICE — Extend corn-for-feed and soybean meal coverage another two weeks for each in the cash market through the end of January. We would view a pullback to the low $3.80s in March corn futures and to $303 in March meal futures as opportunities to further extend coverage.