Livestock Analysis | February 22, 2022

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Hogs

Price action: April lean hog futures soared $2.675 to $112.075, the highest closing price for a nearby contract since mid-July.

Fundamental analysis: Hog futures rose for a sixth consecutive day behind robust cash fundamentals and broad-based strength in commodity markets, including crude oil. The latest CME lean hog index rose $1.89 to $97.12, the highest since Sept. 10, and the next reading is expected to gain another $1.04. Wholesale pork tumbled to end last week but remains up sharply from the January lows. Pork cutout values rose $2.15 early today to an average of $112.24, up nearly $18 since the end of January, a reflection of improving demand and tighter supplies of market-ready hogs. Movement by midday totaled about 161 loads.

Technical analysis: Bulls retain a firm near-term advantage, with nearby April futures closing strong and posting a contract high for the third consecutive session. The continuation chart places resistance around $110.00 and further resistance around $113.00 and $115.00. Initial support is seen around the 10-day moving average of $105.515 and last week’s low of $101.00. April hogs have surged nearly $10 over the past week, pushing the market well-into overbought conditions and raising prospects for a corrective sell-off. The lead contract ended today’s session at 82 on the Relative Strength Index, well above the 70 level that is typically considered the start of overbought territory.

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.

 

Cattle

Price action: February live cattle futures edged up 50 cents to $143.75, while most-active April gained 15 cents to $146.025. March feeder futures tumbled $1.20 to $164.225.

Fundamental analysis: The grain and soy markets surged along crude oil on worries about a Russian invasion of Ukraine, with wheat futures leading the way higher. The implied rise in costs, especially for feed, sent feeder futures lower and seemed to undercut fed values as well. The latter weakness occurred despite the potential for a resulting reduction in feedlot placements, which in turn might reduce fed cattle supplies this summer. That doesn’t seem particularly likely in the short term. However, big premiums in the winter-spring 2022-23 contracts might easily encourage feedlot placements next summer and fall (and could prove self-defeating pricewise down the road).

Monthly and seasonal patterns suggest grocers will not be very aggressive pursuing beef this week, since this is late in the month of February and with Ash Wednesday arriving next week. Still, a few head of cattle changed hands at $145.00 today. Choice beef cutout values fell $2.07 to $262.02, while Select rose 94 cents to $262.78, shifting to a small premium to Choice. This won’t last, simply because choice cuts are more valuable than their select counterparts. The minimal spread between choice and select cutout is very much in keeping with seasonal patterns. Look for choice to regain their advantage as the percentage of calf-fed animals in the slaughter mix increases in the coming weeks. Today’s late surge suggests traders are anticipating steady-higher cash trade later this week.

Technical analysis: Recent price action in April live cattle has seemingly formed a small ‘head and shoulders top’ on its chart. The ‘neckline’ and ‘head’ of that formation around $147.00 and $148.70, respectively, represent initial resistance, while a breakout above those would open the door to a test of the $150.00 level. Conversely, futures bounced late from around its 20-day moving average near $145.48. The market also bounced from similar lows on Feb. 8 and Feb. 14. Look for additional support at the 40-day moving average around $144.05, with a drop below that point likely encouraging bears to target the $140.00 level.

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.

 

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