Livestock Analysis | March 16, 2022
Price action: Hog futures traded mixed, with nearby April slipping 2.5 cents to $102.375, June rising 40 cents to $120.475 and December diving $1.85 to $85.80.
Fundamental analysis: The ongoing dip in the CME hog index, which followed Monday’s 36-cent decline to $100.49 with an 8-cent dip to $100.41 for yesterday’s preliminary figure, seemed to weigh on nearby April futures. Pork cutout also continued its recent bounce, jumping $4.05 to $108.53. April futures trading at a modest premium to the cash equivalent price may partially account for the weakness, although seasonal patterns suggest the market will have started its spring surge by the time the April contract expires on April 14.
Conversely, the summer contracts are supported by prospects for a seasonal surge to annual highs, as well as the idea that the 4% annual decline will push prices well above the year-ago peak at $122.68. The big losses posted by the fall-winter contracts suggest traders are anticipating increased supplies and/or reduced demand by that time. We’re skeptical of the latter idea, since we believe red meat demand holds up rather well during recessions. A substantial increase in late-year supplies also doesn’t seem likely, especially given the comparative lack of bullishness built into hog futures, as well as the prospect of elevated feed costs in the weeks and months ahead.
Technical analysis: The short-term technical situation seems balanced at this point. For example, bulls again proved unable to force a breakout above resistance at the contract’s 20-day moving average near $104.36. Such a move would have bulls targeting the March 3 high at $107.45, then the contract high of $112.85. On the other hand, the market clearly traded above its 10-day moving average at $101.96 and closed above that level today.
Moreover, it has consistently found solid support at its 40-day moving average, now at $101.48, lately. A close below that pivotal level would open the door to a test of the psychologically important $100.00 level, then the March 7 low of $98.475. Further losses would have bears targeting the Jan. 28 low of $93.925.
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: June live cattle fell $1.275 to $135.525, after earlier rising as high as $137.60, a two-week high. April feeder cattle rose 2.5 cents to $162.625
Fundamental analysis: Cattle futures saw pauses or modest downside corrections following recent strong price gains that still suggest live and feeder futures markets have established near-term bottoms. Feeder cattle futures saw limited selling interest today as corn futures prices dropped sharply.
Cattle market bulls were tentative today as packers have yet to establish this week’s cash trade, although feedlots were reportedly asking $3 to $4 more and general expectations are that cash cattle trade will rise $1 to $2 from last week’s average of $138.30. Choice cutout values early today rose 60 cents to $258.50, the highest daily average since late February. Select grade fell 68 cents. Movement totaled 61 loads at midday. Today’s estimated cattle slaughter is 125,000, compared to 125,000 last Wednesday and 115,000 one year ago at this time.
Cattle traders will continue to watch the outside markets and geopolitics. There were some upbeat reports on Russia-Ukraine peace negotiations today that did lift the U.S. stock market higher early on. However, the stock indexes were losing altitude in afternoon trading as traders and investors realize much ground likely needs to be gained in the Russia-Ukraine talks for peace to actually break out.
Technical analysis: April live cattle futures scored a bearish “outside day” down on the daily bar chart today. Bears have the overall near-term technical advantage. However, it still appears a near-term market low is in place. Live cattle bulls' next upside price objective is to close April futures prices above solid resistance at $144.00. The next downside technical objective for the bears is closing prices below solid technical support at the March low of $133.50. First resistance is seen at today’s high of $141.475 and then at $143.00. First support is seen at $139.00 and then at $138.00.
Feeder cattle futures bears also have the overall near-term technical advantage but it looks like a market bottom is in place, too. The next upside price objective for the feeder bulls is to close April futures prices above technical resistance at $167.50. The next downside price objective for the bears is to close prices below solid technical support at the March low of $154.275. First resistance is seen at today’s high of $164.775 and then at $166.00. First support is seen at $162.00 and then at $161.00.
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.
