Pro Farmer's Livestock Analysis
Price action: Hog futures turned lower Wednesday, with the expiring April contract falling $1.525 to $104.525. Most-active June futures dropped 40 cents to $124.225.
Fundamental analysis: Wholesale values ended Tuesday quite weakly, having fallen $3.47 to $103.94 at the end of the day. They continued sliding this morning, slumping another 96 cents to $102.98 at midsession. Recent pork market action still seems to reflect a market caught in a gap between grocer buying of hams for Easter dinner features and the onset of pork loin, butt, rib and trimming purchases for the post-Easter grilling season. We suspect buying of the latter cuts will begin accelerating next week.
As expected, Monday’s official quote for the CME index climbed to $103.56; Tuesday’s preliminary figure is 10 cents higher at $103.66. That means that even after falling substantially today, the April future is still priced about 75 cents over the cash equivalent price. Actually, a modest April premium is probably justified at this point, since the cash market has regularly begun its move toward spring highs by mid-April. Traders apparently remain concerned about the strength of grilling demand due to greatly elevated grocery store prices and the possibility of a U.S./global economic recession amidst the current inflationary environment. We are less concerned on the latter score, contending that consumer demand for red meat doesn’t suffer that badly during recessions. We also think it’s much too early in the spring season to be thinking about a possible top in the hog market, especially with spring and hog supplies falling short of year-ago levels.
The last point was reemphasized by today’s quarterly USDA Hogs and Pigs Report. The March 1 U.S. hog population was stated at 72.209 million head, down 2.3% from the year-ago level. Look for futures to surge, since the number of pigs counted in the upper weight categories fell 1% to 2% below pre-report estimates. Spring and summer hog numbers look likely to fall short of expectations, as will likely fall-winter pig supplies if producer farrowing intentions for spring and summer match the numbers stated on today’s report.
Technical analysis: Today’s setback clearly didn’t help the bullish cause, but they retain the short-term technical advantage. Bears failed to challenge solid technical support near yesterday’s June futures low of $121.90 and its 10-day moving average at $121.86. A drop below that level would then have bears targeting the 20- and 40-day moving averages at $118.98 and $116.56, respectively. Conversely, a rebound would have bulls facing stiff resistance at today’s high of $126.125, then at Monday’s contract high of $126.875. A breakout would face resistance at the spring 2014 high of $128.775, then at the record high of $133.90. We can’t rule out such a test, especially if one is a believer in ‘measured move’ analysis. That is, June hogs surged from a break-out point around $98.15 on Jan. 14 to a Feb. 22 high of $121.43. it then set back to the March 7 low of $109.15. Measured move analysis suggests the current advance will match the January/February surge in size, implying a target around $132.50.
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.
Fundamental analysis: Feeder cattle were pressured by strength in the corn market, which spilled over to selling in live cattle. A lack of cash cattle activity also allowed live cattle futures to drift lower as there’s still uncertainty toward this week’s cash trade.
Packers have been slow to establish cash cattle bids for the week. This week’s Fed Cattle Exchange online auction will be held on Thursday, which adds to the cash uncertainty. Cash sources feel cash trade will eventually occur around steady prices with last week’s average of $138.95, but a big move in futures up or down on Thursday could sway the market.
Morning wholesale beef trade showed strong price gains, with Choice boxes up $2.80 and Select $2.09 higher, though movement remained light at just 47 loads. Retailers continue to signal they are selective buyers, especially on days of strong price gains. Unless that changes, movement will stay light barring packers lowering prices to move more product. There’s currently as much gridlock in the product market as there is in cash cattle trade.
Technical analysis: June live cattle futures posted a modest inside day down following yesterday’s upside breakout from the short-term consolidation range, but the contract closed above old resistance at $137.75. A push above Tuesday’s high at $138.525 would point the contract toward resistance in the $140.00 to $140.50 range. A close below $137.75 would signal a failed upside breakout and point to a test of near-term support in the $135.50 to $134.50 area.
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.
