Livestock Analysis | December 13, 2022
Price action: February lean hog futures rose 87.5 cents to $84.575, the contract’s highest close since Dec. 8.
Fundamental analysis: February futures led lean hogs higher behind strength in wholesale pork and ideas the cash market is near a bottom. The CME lean hog index fell 52 cents to $81.47 (as of Dec. 9), the lowest since late January, but Wednesday’s quote is expected to gain 15 cents. December futures, which expire Wednesday, settled today 78 cents above the index, suggesting traders believe the cash index will move higher in the next two days. A sharp advance in wholesale pork also encouraged buyers, with pork cutout values surging $9.22 early today to $96.16 on strong movement of 207 loads, though that preliminary figure may ultimately moderate by the end of the day.
Packers have stepped up slaughter slightly so far this week, perhaps to meet greater retail demand. Slaughter through today was an estimated 977,000 head, up 3,000 from the same period last week and 23,000 head above the same period in 2021.
Technical analysis: Hog market technicals lean neutral-to-bearish with February futures trading near the bottom of a wide trading range over the past three weeks. February futures’ sharp bounce from an eight-week low of $82.80 Monday and followthrough gains today could suggest the initial stages of a near-term bottom, but the market will need to show sustained buying interest to confirm that, and prices are still under most key moving averages. Initial resistance is seen at the 10- and 50-day moving averages around $86.605 and $86.20, respectively. Further resistance comes in at the 100- and 20-day moving averages, which converge around $87.60 to $87.65.
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: December live cattle advanced 50 cents to $154.90, while February rose 25 cents to $156.35, the contract’s highest close since Nov. 22. January feeders gained 57.5 cents to $184.225.
Fundamental analysis: February live cattle jumped to a three-week high as resurgent wholesale beef fueled optimism over demand amid an outlook for tight supplies of slaughter animals well into 2023. Choice beef cutout values rose another $3.31 early today to $260.33 after soaring $8.09 Monday. Select cutouts also surged Monday but dipped 78 cents to $224.90 at midday. That sent the Choice-Select spread to a whopping $35.43, implying a big shortage of Choice-grade cattle. We should probably expect a short-term setback from these levels, but this surge reminds of the potential strength of the wholesale market if cold weather stresses feedlot cattle and further reduces already tight market-ready supplies. With major snowstorms hitting the Northern and Central Plains this week and potential for frigid temperatures and snow next week, feedlot operators, especially those in the north, seem unlikely to take lower bids for cattle in the near future, unless they simply want to get some moved before the weather worsens.
Renewed grain market strength and firming soymeal futures limited gains in feeder cattle futures. Bulls may also prove less aggressive in the short term if wintry weather in the Plains proves to be particularly severe, since feedlot managers usually hesitate to place animals in poor conditions.
Technical analysis: Today’s mid-range close kept the short-term technical advantage in February live cattle with the bulls. Today’s high at $156.775 confirmed initial resistance in the $156.875 to $156.95 area. Indeed, one could argue that the zone of resistance extends up to the Oct. 27 contract high at $157.225. A breakout above that point would likely have bulls targeting the psychological $160.00 level, then $5.00 intervals above that point. Today’s low placed initial support at $156.425. Look for much stronger support at the confluence of the contract’s 10-, 20- and 40-day moving averages in the $155.12 to $155.20 area, with further backing from the psychological $155.00 level. A drop below that range would have bears again targeting last week’s low at $152.75.
Bulls still own a short-term technical advantage in January feeders. The strong close just below resistance at the daily high of $184.45 left the market in a strong position to challenge last Friday’s high of $184.90. A breakout above that point would open the door to a test of mid-September highs around $188.00, then the psychological $190.00 level. Support at today’s low of $183.075 is backed by the 10-day moving average near $182.58. A drop below that point would have bears targeting the 20- and 40-day moving averages near $180.89 and $180.42, respectively, then the $180.00 level.
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.
