Livestock Analysis | December 8, 2022
Price action: February lean hog futures fell $1.95 to $84.70, the contract’s lowest close since Nov. 29.
Fundamental analysis: Lean hogs fell for the third straight session as wholesale pork weakness and a sharp drop in exports stirred demand concern. The CME lean hog index fell 16 cents (as of Dec. 6) to $82.78, near a 10-month low and signaling that contrary to ideas earlier this week, a seasonal low down not appear to be in place. Wholesale pork posted a modest rebound from an 11-month low early today after plunging Wednesday, rising $1.39 to $85.84 at midday behind a gain of over $7 in bellies.
Export demand also appears to be fading, with USDA reporting net weekly U.S. pork sales reductions of 7,900 MT for week ended Dec. 1, compared to net sales the previous week of 20,100 MT. However, the drop may simply have reflected the upcoming end to the calendar and trade years. Net sales of 2,400 MT were reported for 2023. Separately, USDA data showed U.S. pork exports totaling 539.7 million lbs. in October, up 26.7 million lbs. from September and 487,000 lbs. above last year. However, for the year through October, U.S. pork shipments totaled 5.198 billion lbs., down 12% from the same period last year and partly reflecting a plunge of 54% in exports to China.
Technical analysis: February hogs gapped $1.025 to start the session and fell below support around $85.8175, $84.98, and briefly, $84.0175. Attempts lower will continue to encounter support at $84.025 and at the psychological $80.00 level. Conversely, upside efforts will continue to see resistance at former support near $84.98 and $85.8175, as well as $86.78 and $88.58. Strong resistance lies around the consolidation of the 10 and 100-day moving averages near $87.50 and the 20 and 40-day moving averages near $88.30.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs in the cash market through December.
Price action: February live cattle gained 37.5 cents to $153.925. January feeder futures leapt $2.575 to $183.475.
Fundamental analysis: Cattle futures ended firmer, led by feeders, behind ongoing support from bullish cash fundamentals. Many feedlot managers and packers still seem to be sticking to their guns, with only limited cash trading reported Monday-Wednesday this week. The five-area average live steer price edged 10 cents higher than last week, reaching $155.33 on mixed trading. Minimal trade in Kansas (60 head) took place at $155.00, while more active Iowa-So. Minnesota trade rose 20 cents to $156.71. Moderate trading took place in Nebraska and Texas-Oklahoma, with the Nebraska market dipping $1.00 to $156.00 and Texas slipping 28 cents to $153.09. Having futures rebound from the Monday-Tuesday lows suggests feedlots are disinclined to take lower quotes, but the weakness in the Texas and Nebraska markets suggests some slippage is likely to occur if/when cash trade breaks loose before the weekend.
Today’s midday weakness in choice beef cutout values, which fell $2.32 to $246.64, may also compel producers to take a bit less. But we remain skeptical of packers’ ability to sustain downward pressure on the market, especially in 2023, since cattle supplies decline seasonally while beef demand comes back from the diminished levels typically experienced during the holiday season. We think nearby live cattle futures are underpriced.
Live cattle strength helped lift feeder futures despite strength in corn and soymeal prices. A lack of declines in the feeder index, now at $179.02, may also have spurred buying.
Technical analysis: Bulls seem to own a modest technical advantage on the February live cattle chart. The sustained rebound from the trend line drawn across the September and November lows favors bulls, with the trend line now placing initial support near $153.83. Look for secondary support at today’s low of $153.375 and tertiary support at Tuesday’s low of $152.75. Initial resistance at today’s high of $154.275 likely enjoys major support at the near convergence of the contract’s 10-, 20- and 40-day moving averages between $154.79 and $154.84. A breakout above that zone would likely open the door to a fresh test of the contract high at $157.225.
Bearish traders’ inability to force a test of underlying moving average support reinforced the bulls’ technical advantage in January feeder futures. Initial support at today’s low of $181.10 is backed by the 10-, 20- and 40-day moving averages at $180.72, $180.29 and $179.84. Today’s high marked initial resistance at $183.80, with close backing from Monday’s high at $184.20. A surge above that latter point would have bulls again targeting the September highs around $188.00.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs in the cash market through December.
