Livestock Analysis | February 23, 2022
Price action: April lean hog futures plunged $4.055 to $108.025 after posting a contract high at $112.85 earlier in the session.
Fundamental analysis: The CME Lean Hog Index had recently been rising by leaps and bounds, as indicated by the latest official quote (for Monday) at $98.16, up $1.04 from last Friday. However, Tuesday’s preliminary figure was also quoted at unchanged at $98.16. That surprising end to the recent surge seemingly triggered active profit-taking. Yesterday afternoon’s reversal in pork cutout values may also have spurred selling, although today’s early-session rebound to $114.21 shows the market’s recent strength hasn’t entirely run its course.
Still, seasonal factors suggest flat-to-lower cash price action from mid-to-late February into early April. Whether that historical pattern will hold this winter-spring is open to question, especially after the market proved very strong during that period in 2021. Of course, having hog supplies running 6% under year-ago, as implied by the December USDA Hogs & Pigs report should prove very price supportive. Bears might argue that hog supplies are running ahead of that pace, especially after last week’s total at 2.498 million head topped the comparable year-ago figure by about 4%. However, mid-February 2021 slaughter activity was greatly slowed by the arctic temperatures that dominated the central U.S. Tomorrow’s price action could say a great deal about the short-term outlook, with a move up or down holding the potential for a significant follow-through.
Technical analysis: Wednesday’s action seemed to shift the short-term technical advantage in April hogs to the bears, since it represented a bearish outside day and seeming key reversal. April futures yesterday reached 82 on the Relative Strength Index, well-into overbought conditions. Short-term resistance is marked by today’s high at $112.85, with additional likely to emerge at the summer 2021 levels of $115.50, $118.55 and $123.075. The pivotal $108.00 area may offer initial support. If not, look for the next layer of support at the contract’s 10-day moving average near $105.95. A drop below that point would have bears targeting the Feb. 14 low at $101.00, then the pivotal $100.00 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.
Price action: April live cattle fell $1.275 to $144.75, the lowest close since Jan. 31. April feeder cattle fell 85 cents to $168.275.
Fundamental analysis: Live cattle futures fell to three-week lows on slipping cash market fundamentals and technical selling. Declining wholesale beef values have prompted ideas of seasonal market tops being in place in the cattle market. Feeder futures are under pressure from corn futures that are closing in on $7.00. A wobbly U.S. stock market in the face of elevated geopolitical tensions added pressure.
Expect some stronger packer bids for cattle this week, but with USDA’s Cattle on Feed report Friday afternoon, cash negotiations could be extended late into the week. Not much is happening yet in the cash cattle market, with just a few asking prices and no established bids. Today’s Fed Cattle Exchange auction saw no cattle sell out of 2,037 head offered. Monthly and seasonal patterns suggest retailers will not be aggressive pursuing beef this week, with Ash Wednesday arriving next week.
Choice beef cutout values rose 97 cents early today to $262.61, while Select fell $2.15 to $261.49. Movement at midday was solid at 131 loads. The narrow Choice-Select grade spread is not all that uncommon for this time of year. Look for Choice to make further gains on Select grade as the percentage of calf-fed animals in the slaughter mix increases in the coming weeks.
Technical analysis: Live and feeder cattle futures bulls still have a firm near-term technical advantage but are fading. Price uptrends on the daily bar charts for live and feeder cattle futures have stalled out. Live cattle bulls' next upside price objective is to close April futures prices above solid resistance at the contract high of $148.70. The next downside technical objective for the bears is closing prices below solid technical support at $142.00. First resistance is seen at $146.00 and then at this week’s high of $146.975. First support is seen at today’s low of $144.55 and then at $144.00.
The next upside price objective for the feeder bulls is to close April futures prices above technical resistance at the contract high of $173.975. The next downside price objective for the bears is to close prices below solid technical support at the January low of $163.90. First resistance is seen at today’s high of $169.85 and then at this week’s high of $170.95. First support is seen at today’s low of $167.725 and then at $167.00.
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.
