Livestock Analysis | February 2, 2022
Price action: April lean hogs rose $1.45 to $99.125 after posting a contract high at $100.275, while February futures fell 80 cents to $87.35.
Fundamental analysis: Hog futures reached contract highs for a second straight day on stronger cash fundamentals, though prices faded after an initial surge. Wholesale pork prices rose early today but remain down from two-month highs in late January. Retail buyers appear unwilling to purchase pork when cutout values are near the $95.00 area, raising questions whether today’s early gain, to $94.37, will be sustained. Wholesale pork weakness probably reinforced the negative psychological impact of the preliminary figure for the next CME Lean Hog Index, which rose just 15 cents to $83.29. The modest gain, in contrast with sharp increases in previous days, likely pulled February futures lower.
Packers ramping up slaughter rates as workers recover from Covid infections has powered an early-week surge in kills, which may be limiting wholesale market strength. But this should also clean up market-ready hog supplies and seems likely to power sustained hog/pork gains as winter passes, especially if USDA analysts are correct projecting winter hog supplies 6.0% below year-ago levels. Anticipation of those reductions, as well as a 4.0% annual supply cut during spring, are powering the strong gains posted by the spring and summer contracts.
Technical analysis: Bulls hold a short-term technical advantage. April futures’ strong rally Jan. 14-25 formed the “flagpole” of a “bull flag” formation, with the flag represented by the Jan. 26-31 pullback. Gains the past two days seemingly signaled the start of bullish followthrough, with a potential target matching the size of the preceding flagpole and implies a target around $108.00. However, bulls have been unable to prevent sizeable late-session setbacks from the intraday highs the past two sessions, suggesting bears are providing significant resistance. The setback from today’s high at $100.275 indicates considerable resistance above the psychologically important $100.00 level. Look for stout support at the 10-day moving average near $96.00, then at Tuesday’s low of $94.625.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
Price action: April live cattle rose $1.525 to $146.90 after reaching a contract high at $146.95. February futures gained 82.5 cents to $141.125, the highest settlement for a nearby contract in six years. March feeder cattle rose $3.175 to $166.875, near a three-week high.
Fundamental analysis: Live and feeder cattle futures continued a recent surge off January lows on strengthening cash trade and gains in outside markets such as crude oil. Also, the U.S. dollar index has pulled back from a recent rally to 19-month highs, easing concern U.S. beef exports may be crimped. A winter storm hitting major cattle-producing states in the central and southern U.S. Plains, bringing heavy snow and frigid temperatures, may hinder marketing of animals and hamper weight gains.
Negotiated cash cattle trade was reported in the northern market at $140 live and $222 on a dressed basis, up around $2.00 from last week. Bids in the Southern Plains remain around $137. Feedlots continue to pass on these bids, which were around steady with last week’s prices. Light cash cattle trade was reported from $137 to $139 in the Southern Plains yesterday, $1.00 to $2.00 higher than last week. Choice cutout values fell another $1.68 early today to $283.76, while Select dropped 16 cents. Movement by midday was 72 loads.
Technical analysis: Live cattle futures bulls have the solid overall near-term technical advantage as charts strengthened over the past week. Bulls' next upside objective is closing April futures above solid resistance at $150.00. The next downside objective for bears is closing prices below solid support at $142.00. First resistance is seen at today’s contract high of $146.75, then at $147.50. First support is seen at today’s low of $145.475, then at yesterday’s low of $144.25.
In feeder cattle, bulls also have a near-term advantage and increasing momentum. The next upside objective for bulls is closing March futures above resistance at the August high of $171.575. The next downside objective for bears is closing prices below solid support at $160.00. First resistance is seen at today’s high of $167.225, then at $168.50. First support is seen at $165.00, then at today’s low of $163.725.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
