Livestock Analysis | March 10, 2022
Price action: Hog futures were mixed Thursday, as the April contract led the nearby contracts lower with a $1.05 drop to $100.10.
Fundamental analysis: Thursday’s mixed futures action seemingly reflected the latest cash and wholesale market action, as well as uncertainty among traders. The lean hog index looks likely to continue Tuesday’s official 26-cent bounce to $99.26 with a 65-cent follow-through to $99.91, as indicated by the preliminary figure for Wednesday. Conversely, after jumping $2.34 yesterday, pork cutout dipped 97 cents $106.77 at midsession today. Moderate losses in loins, hams and ribs offset a jump in belly values.
These shifts reflect the usual late-winter confusion in the hog and pork complex, when weak Lenten season demand and a modest upward tick in hog slaughter often stall or reverse the early-winter rally. The cash market regularly stumbles around at this time of year, but few want to sponsor the short side of the market since they are keenly aware of the complex’s seasonal tendency to turn sharply higher during spring. Renewed consumer demand for the grilling season routinely meets slaughter rates falling toward annual lows in early summer, thereby sending cash and wholesale prices to annual highs. History suggests it could be another 3-4 weeks before that transition occurs but given the anticipated 4% annual decline in spring hog supplies, it might easily come earlier.
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: Cattle futures followed through upon Wednesday’s reversal today, with April live cattle tumbling $1.675 to close at $135.90. April feeder futures plunged $3.90 to $156.25.
Fundamental analysis: The broader economic and geopolitical situation seemed to weigh upon cattle futures Thursday. Traders clearly worry about spring-summer beef demand from consumers if the U.S. and global economies go into recession. History suggests such concerns are overblown, (i.e. red meat demand often holds up well during recessions, likely due to reduced restaurant visits and more eating at home by consumers), but traders may also be harboring concerns the greatly elevated retail beef prices seen in recent months will persist through spring and summer. That may partially explain the sustained weakness despite a second straight day of wholesale beef gains (as of midday).
Having cumulative cash cattle quotes for this week’s trading edge up from $137.98 on Tuesday to $138.12 on Wednesday suggests underlying strength in the market. We also would be very reluctant to rule out the cattle market’s historical pattern of rallying into April this year. Slaughter rates are likely to start edging higher in the weeks just ahead, but consumer demand should also surge as grilling season nears.
Unfortunately for cattle producers, the corn and soy markets put in very strong price performances Thursday. In particular, the gains posted by corn and soybean meal directly imply a rise in feed costs for feedlot operators, who will almost automatically cut their bids for replacement yearlings. Indeed, the severity of the feeder reaction probably undercut fed cattle futures as well, despite the underlying implication that reduced demand for feeder cattle will eventually add up to fewer cattle in feedlots down the road.
Technical analysis: Bears again hold the short-term technical advantage in April live cattle futures, with today’s action apparently marking a bearish followthrough after the contract failed at 10-day moving average resistance (now at $138.85) Wednesday. The contract found support just above Monday’s low at $135.35, which in turn is backed by last Friday’s low of $133.50. Penetration of that level would have bears targeting $130.00. Resistance at the 10-day moving average is reinforced by the Jan. 24 low of $139.025, with likely additional backing around $140.00. A close above that level would have bulls targeting the 40-day moving average at $142.98.
The April feeder chart looks similar, with the contract finding support at Monday’s low of $156.15 after having failed at 10-day moving average resistance (now at $160.37) yesterday. Additional support is at last Friday’s low of $154.275, whereas a bullish breakout above the 10-day moving average would face selling at the Jan. 24 low of $163.90.
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.
