Livestock Analysis | October 18, 2022

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Hogs

Price action: December lean hog futures surged $1.525 to $86.475, the contract’s highest close since Sept. 20.

Fundamental analysis: Hog futures extended a sharp rally to four-week highs amid optimism over demand during the latter part of the year and recent strength in cash fundamentals. Despite recession concerns, red meat consumption appears to be holding up relatively well. Futures’ strength may also reflect U.S. pork demand from China may soon improve.

Although the traditional late summer-early fall rally in cash hog and wholesale pork values has tended to run out of steam in mid-October of the past few years, this week’s strength in those markets suggests this firmness will persist for a while yet. Moreover, the bullish futures breakout suggests knowledgeable traders expect the current strength to continue for a while.

The CME lean hog index rose 26 cents to $93.35 (as of Oct. 14), the fourth gain in the past six days, though it’s expected to fall 16 cents Wednesday. December futures ended today $6.875 above today’s index, suggesting the industry is anticipating sustained strength. Last week’s estimated hog slaughter total at 2.545 million head, down 3.2% from year-ago after having fallen 1.6% annually the week prior might also suggest hog supplies aren’t living up to the USDA’s implicit forecast 1% decline for the rest of the year. The December contract’s $13.00-plus rally from its Oct. 4 low indicates industry optimism about the fourth-quarter outlook has improved significantly.

Technical analysis: Bulls hold a strong short-term advantage in December futures, though the market is getting overbought. The 14-day RSI reading is 64.05, with 70 being officially overbought. Look for initial resistance around $87.15, at the trendline drawn across the contract’s August and September highs. Those highs put additional resistance at $89.075 (Sept. 20) and $91.35 (Aug. 16). Initial support seems likely to emerge around the psychological $85.00 level, with backing from today’s low at $84.65. A drop below that point would have bears again targeting the contract’s 40-day moving average at $82.18.

What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.   

Hedgers: Carry all risk in the cash market for now.

Feed needs: You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.

 

Cattle

Price action: December live cattle rose 57.5 cents to $149.775, the highest closing price since Sept. 21. November feeder cattle rose $1.425 at $177.825.

Fundamental analysis: Cattle futures were supported by improving cash market fundamentals and bullish technicals. There was talk feedlot operators today passed on higher cash cattle bids in Nebraska. Last week’s Nebraska trade averaged $147.74. We look for higher overall cash cattle trading when it more fully commences later this week. USDA-reported steers averaged $146.99 last week, up from $146.23 the previous week. Choice beef cutout value rose another $3.86 at noon today, to $252.00. Select grade was up $1.38 to $220.99. The Choice-Select spread widened to $31.01, suggesting still very tight market-ready cattle supplies at present. Movement at noon today was 71 loads.

Feeder cattle futures were also supported by lower corn futures prices so far this week. Short covering from speculators was also featured in the feeder cattle futures market today. Unusually cold weather in the U.S. Midwest and Plains states also may limit weight gains in cattle in the near term.

Technical analysis: Live cattle bulls hold a near-term technical advantage. A three-week-old uptrend is in place on the daily bar chart for December futures. Live cattle bulls' next upside price objective is to close December futures prices above solid resistance at the contract high of $152.375. The next downside technical objective for the bears is closing prices below solid technical support at $147.00. First resistance is seen at $150.00 and then at $151.00. First support is seen at today’s low of $149.00 and then at this week’s low of $148.05.

Feeder cattle futures bears still have the overall near-term technical advantage. However, a two-month-old downtrend on the daily bar chart has stalled out. The next upside price objective for the feeder bulls is to close November futures prices above technical resistance at $181.00. The next downside price objective for the bears is to close prices below solid technical support at the October low of $172.10. First resistance is seen at $179.00 and then at $180.00. First support is seen at today’s low of $176.45 and then at $175.00.

What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.   

Hedgers: Carry all risk in the cash market for now.

Feed needs: You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.

 

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