Livestock Analysis | January 18, 2022
Advice: We advise livestock producers to use the break below $400 in March meal futures to cover all soymeal needs in the cash market through the end of this month.
Price action: April lean hog futures rose 82.5 cents to $89.275, matching the Jan. 6 close for the highest settlement since Oct. 1. February lean hogs rose 70 cents to $81.60.
Fundamental analysis: Nearby lean hogs rose for the third session in the past four on followthrough technical momentum from last week’s gains and strengthening cash fundamentals. The next CME lean hog index is expected to rise another 88 cents to $76.78, the highest since Nov. 10. Pork cutout values rose $1.79 early today to $93.73, led by gains of over $10 in primal hams. Movement by midday totaled about 175 loads.
The cash and futures strength indicates easing concern over Covid-related slowdowns at meatpackers and an uptick in retailer demand, assuming cutout values can buck a recent trend and sustain prices above $90.00. Today’s hog slaughter was an estimated 468,000 head, up 15,000 from the same day last week but down 29,000 head from the same day in 2021.
China's 2021 pork output reached 53.0 MMT last year, just below the 53.4 MMT produced in 2017, prior to the African swine fever (ASF) outbreak that decimated the country’s hog herd. China slaughtered 671.3 million hogs in 2021, up 27% from a year earlier.
Technical analysis: Hog technicals have firmed over the past week as prices punched above several key moving averages. April hogs earlier today reached $89.40, the highest intraday price since $89.65 on Jan. 7 and slightly under a six-month high of $89.675 reached Jan. 6. A push above resistance may have bulls targeting the contract high of $91.875, reached June 10. Support is seen at the 10- and 20-day moving averages, both around $86.95, and last week’s low at $83.60.
What to do: Get current with feed advice. We are targeting a drop to the $385 area (50% retracement of the November-to-January rally) to further extend coverage. You remain hand-to-mouth on corn-for-feed needs. Our target for extending corn coverage would be a drop to the $5.75 area.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE – Cover all soymeal needs in the cash market through the end of January. You remain hand-to-mouth on corn-for-feed needs.
Advice: We advise livestock producers to use the break below $400 in March meal futures to cover all soymeal needs in the cash market through the end of this month.
Price action: February live cattle fell 30 cents to $136.675 and April futures fell 27.5 cents to $141.85. March feeder futures fell 95 cents to $165.425.
Fundamental analysis: The meatpacking industry continues struggling Covid-related worker absenteeism, as illustrated by lower slaughter numbers the past two weeks, which have averaged about 5.0% under year-ago rates despite cattle on feed numbers largely matching those from early 2021. The slowdown is contributing to weakness in cash cattle prices. Live steers last week averaged $136.61, down from a $138.41 average the previous week and the fifth weekly decline in the past six. Further weakness is expected this week, despite surging wholesale beef prices.
Live steer carcass weights reached 928 pounds per head during the last week of December, suggesting a building backlog of animals at feedlots that may give packers the upper hand in price negotiations. This suggests weaker demand for replacement cattle from feedlot operators, who are seeing their profit margins squeezed. However, a month-long rally in wholesale beef may be providing packers strong incentives to secure slaughter-ready supplies and ramp up processing. Choice cutout values rose $1.43 early today to $289.29, the highest daily average since early November.
Technical analysis: Bears seem to own a modest advantage, especially after bulls were unable to produce a futures close above 40-day moving average resistance around $138.35 the past two sessions. Secondary resistance is seen around Friday’s high at $138.75. A push above that level would probably have bulls targeting the Jan. 3 high at $140.40, then the Dec. 29 top at $141.425. Conversely, bears could not mount a test of chart support at the 10-day moving average near $137.29 today. Bulls can also expect solid support to emerge at the Jan. 10 low of $136.025, then at the December low at $135.50. A close below that level would have bears targeting fall lows around $130.00.
The March feeder chart seemingly favors bulls slightly, with futures working higher since early November. Bears were able to force a close below the contract’s 40-day moving average, near $165.88, for the second time in the past week, but the market has been trading on either side of that indicator since Jan. 6. Bears have not been able to seriously challenge support at the 50-day moving average near $164.86 during that span. A breakout above recent resistance around $167.50 would likely have bulls targeting the Dec. 31 high at $170.83, whereas a drop below the 50-day moving average would probably encourage bears to shoot for the $160.00 level.
What to do: Get current with feed advice. We are targeting a drop to the $385 area (50% retracement of the November-to-January rally) to further extend coverage. You remain hand-to-mouth on corn-for-feed needs. Our target for extending corn coverage would be a drop to the $5.75 area.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE – Cover all soymeal needs in the cash market through the end of January. You remain hand-to-mouth on corn-for-feed needs.
