Livestock Analysis | December 22, 2022
Price action: February lean hog futures rose 65 cents to $89.05, the contract’s highest close since Dec. 5.
Fundamental analysis: Hog futures reached the highest levels in over two weeks as the market extended gains from Wednesday’s rally behind technical strength and beliefs the cash market is near a bottom. The CME lean hog index fell 29 cents to $80.57, an 11-month low, and the preliminary figure for Friday is expected to fall another 90 cents. Despite a nearly $42 decrease from the year’s high in August, the index is at a $7.55 premium above year-ago, though a seasonal low had already been established by this time last year. Wholesale pork prices rebounded from an 11-month low, as pork cutout values up $5.09 early today to $87.54 on strong movement by midday at 190 loads.
USDA reported net weekly U.S. pork sales of 58,700 MT for 2022, quadrupling the previous week’s sales of 14,400 MT. Lead buyers included Mexico (33,400 MT, including decreases of 300 MT) and Japan (9,900 MT, including decreases of 700 MT). Net weekly pork sales for 2023 totaled 16,100 MT, primarily for China (4,800 MT), South Korea (3,200 MT), Mexico (2,500 MT), Japan (2,200 MT) and Canada (1,200 MT).
Technical analysis: February lean hogs traded a $2.45 range, briefly dipping below the 40 and 100-day moving averages near $84.47 and $87.27, respectively, which will continue to serve as support. Additional support stands at the 20-day moving average near $86.09, along with $85.24 and the 10-day moving average around $85.06. Attempts higher, however, will encounter resistance first at $90.00, again around $90.21, then $92.03, and $95.19.
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 declined 40 cents to $157.30, while deferred contracts posted modest gains. January feeder futures gained 15 cents to $183.975.
Fundamental analysis: Live cattle futures ended mixed after generating little followthrough buying from Wednesday’s rally to contract highs, though expectations for longer-term strength in the cash market continue to underpin the market. Weakness in U.S. equities weighed on ag markets. Little cash trade has been reported so far this week even with extreme cold and blizzard-like conditions hitting the Plains. We suspect the price setback will prove temporary, since this week’s cash trading is likely to rise at least $1.00 from last week. Light Monday-Wednesday activity reflected that, averaging 90 cents higher, at $155.90, than they did at the same time last week. Moreover, midday beef prices resumed their recent advance, with Choice cutout climbing $1.66 to $266.74. If that rise holds through the end of the day, it would mark the highest quote since early August. The tightness of market-ready cattle and Choice beef supplies is still reflected by the extremely wide Choice-Select spread; it was stated at $26.54 at midsession. We still believe concerns about red meat demand in a recession are overdone, especially if we’re correct in expecting average retail beef prices to remain consistently below year-ago levels through the first quarter.
USDA today reported net weekly beef sales of 4,500 MT for 2022, down from 10,900 MT the previous week. Japan led buyers at 3,500 MT, including decreases of 400 MT. Net sales of 7,200 MT for 2023 were led by Japan (2,600 MT) and China (2,000 MT).
Technical analysis: Bulls maintained a short-term technical advantage in February live cattle. Though the market produced no followthrough upside in the wake of Wednesday’s breakout, the setback may mean the market has the potential for sustained gains through winter rather than a short-term spike. Today’s high placed initial resistance at $157.75; it’s closely backed by Wednesday’s high at $157.975. Look for additional resistance at the psychological $160.00 level. Today’s action confirmed initial support at the former contract high of $157.225, with yesterday’s bullish surge likely flipping the former resistance zone down to $156.775 to solid support. A drop below that level would have bears targeting pivotal support at the 40-day moving average, now near $155.24.
Despite the January feeder contract’s recent struggles to break out above recent highs, bulls still appear to own the short-term technical advantage. Resistance extends from today’s high at $184.30 to the Dec. 9 high of $184.90. A close above the latter point would likely have bulls targeting September highs around $188.00, then the psychological $190.00 level. The 10-day moving average places initial support near $183.58. That’s loosely backed by the 20-day moving average at $182.15, then the 40-day moving average at $180.96. Look for stout support at the psychologically important $180.00 level as well. A drop beyond that point would likely open the door to a test of $175.00.
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.
