Livestock Analysis | February 16, 2022
Price action: April lean hog futures rose $1.25 to $105.40, the highest settlement for a nearby contract since prices topped $110.00 in August.
Fundamental analysis: Ongoing wholesale and cash market gains continued to power gains in hog futures. After jumping $1.33 today, the preliminary figure for next the CME lean hog index is up another $1.51, to $93.35, the highest since early October. While pork cutout values ended lower yesterday following a morning jump, the average was up $3.33 early today to $108.08.
This week’s hog slaughter total is running far ahead of the comparable year-ago figure early this week, with the three-day total reaching 1.426 million head, up 11% compared to the same period in 2021. However, this big disparity reflects the arctic weather that hit the U.S. in mid-February last year. Still, slaughter numbers provide little reason to think current hog supplies are diverging significantly from the 6.0% winter reduction indicated by the latest USDA Hogs and Pigs report last December. On the other hand, early-March totals may start indicating smaller year-to-year declines, since the report implied spring hog supplies would run “only” 4% under comparable 2021 levels. And while current cash hog and futures values look high for this time of year, the CME index peaked at $122.68 last June. A 4.0% annual reduction in spring supplies would certainly suggest prices could go even higher by late spring.
Technical analysis: Bull retain a short-term advantage, with the larger chart pattern suggesting another strong bullish advance is forthcoming. However, April futures posted a low-range close today, suggesting bulls may be losing upward momentum. The quick reversal from today’s high at $106.525 placed resistance at that level, as well as the Feb. 10 contract high at $107.70. A breakout above that level would have bulls targeting $110.00.
Initial support persists at the 10-day moving average at $102.56 and is backed by yesterday’s low at $102.075, Monday’s bottom at $101.00 and the psychologically important $100.00 level. A drop below the latter would have bears targeting January lows around $94.00.
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 2.5 cents to $146.925. March feeder cattle fell $1.275 to $167.45, nearer the session low.
Fundamental analysis: Live cattle futures paused as traders waited for cash trade to establish, while feeders were pressured by strength in corn prices. Outside markets were mostly supportive for cattle futures, as the U.S. dollar index weakened and crude oil rose sharply.
Cash trading has been fairly quiet so far this week, with some unconfirmed talk of $142 trade in Kansas. Cash sources indicate feedlots were asking $142 to $143 for this week’s show list supplies in the Southern Plains, up from last week’s $140.48 average, while the northern market has been quiet so far. Feedlots may be passing on the initial $142 bid in hopes of something better later this week. Packers may be slow playing it in hopes feedlots will pull the trigger. Market-ready fed cattle supplies are likely at or near annual lows.
Declining wholesale beef prices are limiting the upside in cattle futures. Meatpackers have been lowering prices to move more product. Choice cutout values early today dropped 92 cents to $269.45, the lowest since January. Movement was 74 loads at midday. Packers slaughtered an estimated 244,000 head of cattle so far this week, up 1,000 from the same period last week, USDA reported.
Technical analysis: Live cattle futures bulls still have a solid near-term technical advantage. Upside objectives including closing April futures above solid resistance at $150.00. The next downside objective for bears is closing prices below solid support at $143.00. First resistance is seen at today’s high of $147.70, then at the contract high of $148.70. First support is seen at $146.00, then at this week’s low of $145.275.
Feeder futures bulls have a firm near-term technical advantage. 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 $162.00. First resistance is seen at this week’s high of $169.375, then at the December high of $170.825. First support is seen at today’s low of $166.90, then at this week’s low of $165.70.
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.
