Livestock Analysis | February 15, 2022
Price action: April lean hog futures rose $1.825 to $104.15, the contract’s highest closing price since Jan. 9.
Fundamental analysis: Hog futures rose for a second consecutive day behind cash market strength and bullish technicals that helped fuel the steep rally over the past month. Today’s CME lean hog index rose $1.59 to $90.51, the highest since Oct. 8, and the cash benchmark is expected to jump another $1.33 tomorrow. April hogs assumed lead-month status today and ended today’s session at a $13.64 premium to the cash index, reflecting expectations for a stronger-than-normal seasonal rally.
Meatpackers have accelerated slaughter so far this week and continue to move product at higher prices, indicating firm retail demand. Pork cutout values rose $2.13 early today to $110.11, as strong belly and ham prices pushed values to a fourth-month high. Movement by midday totaled 170 loads.
Technical analysis: Bulls still hold a near-term technical advantage, though April futures are overbought and may have shifted into a sideways consolidation trade. The next few days will be key to the market’s near-term direction. A failure to generate followthrough buying to test last week’s contract highs might signal the establishment of a short-term peak. Upside targets include the contract high of $107.70 reached Feb. 10, while initial support is seen at yesterday’s low of $101.00, which coincides with the 10-day moving average.
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 55 cents to $146.90, while March feeder cattle futures rose $1.85 to $168.725, the contract’s highest closing price since Jan. 3.
Fundamental analysis: Anticipation of continued cash market strength boosted live cattle futures, as illustrated by the February contract’s $2.50 premium to last week’s live steer average of $140.48. This week’s cash trade has yet to establish. Last week’s slaughter total at 659,000 head, marked a 53,000-head (8.7%) year-to-year increase, probably enabled by a modest backlog built during January as packing plants slowed operations due to Covid-driven worker absenteeism.
Packers likely wouldn’t have paid up for cattle the past two to three weeks, if they didn’t want to send beef into their marketing channels. It seems likely they’ll pay up for cattle again this week, despite the fact that wholesale prices have continued sliding. Market-ready fed cattle supplies are likely at or near annual lows. Feeder futures were boosted by slumping corn and soymeal futures. Short-term price prospects still seem rather promising, although feeder futures seem somewhat overpriced, especially when the cattle/feeder cattle price relationship is viewed within the context of current corn and soybean meal costs.
Technical analysis: Bulls still seem to hold the short-term technical advantage in April live cattle, but recent action hasn’t been especially encouraging. Bulls were able to push the price back above support at its 10-day moving average near $146.73, but today’s mid-range close left the price just above that support. Recent price action resembles a small head-and-shoulders top on the daily bar chart, so futures may prove vulnerable to declines in the near future. Initial resistance is likely to emerge at today’s high of $147.475, with stiffer resistance set at the Feb. 10 contract high of $148.70. A push above that level would have bulls targeting $150.00. Yesterday’s low at $145.275 represents secondary support, with backing from the 20-day moving average at $144.63. A drop below that point would have bears targeting the 40-day moving at $143.59.
Bulls hold the short-term advantage in March feeder cattle. After having dipped below its 10-day moving average at $166.84 yesterday, the contract built upon that rebound today and posted its highest close since January 3. Today’s high at $169.375 marks initial resistance. The rally filled the gap created by the Jan. 4 breakdown, which may have opened the door to a test of the Dec. 31 high at $170.825. Additional resistance likely extends from the contract high at $171.575 reached last August. However, a failure after having filled the Jan. 4 gap could open the door to a follow-through drop. Look for support at yesterday’s low of $165.70, then at the 40-day moving average near $165.12. A drop below that level would have bears targeting the January low at $158.225.
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.
