Livestock Analysis | December 20, 2022
Price action: February lean hog futures fell $1.45 to $84.25, near the bottom of today’s range.
Fundamental analysis: Hogs faded under further indications the cash market has yet to find a seasonal bottom following an extended slide. The national direct cash hog price dropped 79 cents on Monday, with the Iowa/Minnesota market down $1.98. The CME lean hog index fell 71 cents to $80.84 (as of Dec. 16), the lowest level since Jan. 27 and a signal the cash market has not yet put in a seasonal low. The preliminary index quote for Monday (12/19) did inch up 2 cents to $80.86, but ideas the annual low will come next week apparently dominated trader thinking. Weakness in wholesale pork also encouraged selling. Pork cutout values fell $2.06 early today to $82.87, the lowest daily average since Jan. 11 but still a preliminary figure. Ham prices have fallen since late last week and are likely to do more of the same during the days ahead after grocers completed their buying for Christmas and New Year’s Day dinner entrees.
Technical analysis: With hog futures bears retaining a slight near-term technical advantage, prices may be in for more choppy, sideways, low-volume trade through the holidays. The next upside objective for bulls is to close February futures above solid resistance at $90.00. The next downside objective for bears is closing prices below solid support at the December low of $81.525. First resistance is seen at Monday’s high of $86.55, then $88.00. First support is seen at today’s low of $84.00, then last week’s low of $81.525.
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 fell 47.5 cents to $155.575, around the middle of the past week’s range. January feeder futures leapt $1.525 to $183.625.
Fundamental analysis: Live cattle futures extended a choppy, sideways pattern as ongoing near-term skepticism over the cash market grappled with longer-term optimism tied to tight supplies of market-ready animals. Skepticism is reflected in December futures trading at a modest discount to last week’s cash average of $155.69 and the February contract essentially trading at par. Some traders may be looking for last Friday’s $6.53 jump in Choice beef values to be reversed. We’re skeptical of such ideas, especially with supplies likely declining both seasonally and cyclically early in the new year. The latter was emphasized today by wire service surveys showing industry analysts expect Friday’s USDA Cattle on Feed report to show November placements 4.2% under year-ago and the Dec. 1 large-lot feedlot population down 2.8% annually.
Bears may also be expecting consumer demand to decline if the U.S. enters a recession. However, meat demand tends to hold up well during recessions as consumers curb restaurant visits and dine more at home. Moreover, we expect the autumn 2022 dip of average retail beef prices below comparable year-ago levels to continue in 2023, which could boost domestic beef demand.
Bulls seemed to ignore outside markets in buying feeder futures today, since the nearby contracts posted big gains despite the slippage in the fed cattle contracts and concurrent firmness in corn and soybean meal futures. It may simply have reflected ideas that Monday’s dive was overdone.
Technical analysis: Bulls still own the technical advantage in February live cattle futures. Bears mounted a strong challenge of support marked by the confluence of the contract’s 10-, 20- and 40-day moving averages between $155.22 and $155.35. Those essentially mark initial support, with backing from the psychological $155.00 level. A close below those points would open the door to a retest of the early December low at $152.75. Today’s high of $156.00 marked the start of a zone of resistance extending up to the Oct. 27 contract high at $157.225. A breakout above that level would likely have bulls targeting $160.00, then $165.00.
Monday’s drop in January feeder futures seemed to mark the start of at least a short-term test of support around the contract’s 40-day moving average near $180.81. But fresh support emerged at $181.25, with the subsequent rebound reestablishing initial support at the 10-day moving average near $183.26. Thus, bulls still own the short-term technical advantage. Today’s high at $184.00 seemingly reinforced initial resistance between that point and the Dec. 9 high of $184.90. A surge above that zone and the psychological $185.00 level, would likely have bulls targeting September highs around $188.00, then the $190.00 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.
