Livestock Analysis | February 28, 2022
Price action: April lean hogs futures fell 17.5 cents at $103.50, the contract’s lowest settlement since $102.325 on Feb. 14.
Fundamental analysis: Lean hog futures fell sharply for a fourth straight session amid growing beliefs the market established a near-term peak at the contract highs posted the middle of last week. A downdraft in cattle futures today added spillover pressure on hog futures. Cash hog market fundamentals remain solid, with the CME lean hog index up 36 cents today and projected to be up another 69 cents tomorrow, near a six-month high. Wholesale pork prices have also been strong. Pork cutout values rose $7.60 early today to $120.92, led by a jump of over $22 in primal bellies. Movement was decent at 154 loads. The five-day rolling average cash hog prices was today quoted at $86.60.
Seasonals are suggesting a late-winter top is in place in futures. However, if buyers surface in strong fashion this week, the recent declines would amount to a downside correction in the existing price uptrend. April lean hogs still hold a $4.41 premium to the cash index quote for Tuesday (as of Feb. 25). Whether wholesale pork can extend recent strength will influence futures price action. Lean hog market bulls are still pointing to hog slaughter numbers that are projected to be down 3% to 4% from year-ago levels.
Technical analysis: April lean hog futures last week scored a bearish “key reversal” down on the daily chart, one clue that a market top is in place. Bulls still have the overall near-term technical advantage, as prices are in an 11-week-old uptrend on the daily chart. The next upside price objective for bulls is to close April futures above solid resistance at the contract high of $112.85. The next downside objective for bears is closing prices below solid technical support at $100.00. First resistance is seen at $105.00 and then at $106.425. First support is seen at today’s low of $102.875, then at $102.00.
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 fell 50 cents to $141.425, the contract’s lowest closing price since $140.10 on Jan. 25. The February live cattle contract expired $1.225 higher at $140.50. April feeder cattle tumbled $2.75 to $162.00, the lowest close since Nov. 12.
Fundamental analysis: Feeder cattle futures faced heavy selling from the strong gains in corn. With corn at elevated levels, feeder cattle are likely to trade opposite, especially on days when corn is firmer. March feeder cattle are trading below the cash market, but that isn’t likely to deter near-term selling in futures if corn continues to strengthen. Early results from the weekly Oklahoma City feeder cattle auction produced a light test, though demand was deemed “moderate to good.”
Live cattle tried at times to post corrective gains but failed to find sustained buying given sharp losses in feeders. Last Friday’s Cattle on Feed Report data provided no market direction, as expected. Focus as the week progresses will turn to cash cattle trade, though active trade is likely at least a couple days off, especially if packers aren’t willing to raise cash bids. Last week’s average price was $143.22, up 86 cents from the previous week.
Wholesale beef trade started slowly, with Choice boxes up 7 cents and Select 13 lower this morning. Packers moved only 40 loads of product.
Technical analysis: After last week’s price action, bears have short-term momentum and bulls need to defend the January low at $139.025 to avoid more technical damage. Violation of that level would point the contact toward support in the $136.50 area. A successful defense of the January low would suggest a short-term corrective rebound would be likely.
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.
