Livestock Analysis | January 25, 2023
Hogs
Price action: Hog futures ended Wednesday narrowly mixed, with the nearby February contract slipping 30 cents to $76.80.
Fundamental analysis: Pork carcass values remain relatively stable in the $80.00 area. After firming yesterday morning, they set back in afternoon trading, but they bounced modestly again this morning. The wholesale complex is probably struggling with large supplies in the wake of the surprisingly large hog slaughter totals posted the past two weeks. The big levels reached early this week haven’t helped the bullish cause either, with the Monday-Wednesday total of 1.463 million head topping the year-ago figure by 4.6%. If the USDA is correct in thinking the hog supply reductions that persisted throughout 2022 will continue through the first half of this year, a small weekend kill might easily pull the weekly total below the comparable January 2022 number. If it remains above year-ago, the industry may have to rethink its views of likely hog supplies during the weeks and months ahead.
Seasonally mediocre demand and large supplies are clearly taking a toll on hog prices. However, after the lean hog index for Monday was officially quoted at $72.11 this morning, Tuesday’s preliminary figure edged up 21 cents to $72.32. That would represent the first cash market rise since December 27. As pointed out previously in the PF Newsletter, such January losses below the usual late-December low are rare. Conversely, such declines have largely proven to be no obstacle to an essentially normal advance through late winter and spring.
Technical analysis: Bears still retain the short-term technical advantage in February hog futures at this juncture. However, support around the October and mid-January lows at $76.40 has proven rather solid. Today’s dip to $76.30 did not trigger fresh selling, but a follow-through drop from that area would likely have bears targeting the psychological $75.00 level, then $70.00. Today’s high marked tentative initial resistance at $77.35, but a short-term test of the 10-day moving average near $77.84 seems likely if bears aren’t able to trigger a downside follow-through in the near future. A bullish breakout would have bulls targeting the $80.00 level, then the 20-day moving average near $81.48.
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 soymeal needs covered in the cash market through February.
Cattle
Price action: February live cattle futures slipped 25 cents to $157.60 Wednesday, while the deferred contracts posted slight gains. March feeder futures inched up 15 cents to $183.75.
Fundamental analysis: Cattle slaughter has remained consistently above year-ago levels. That development, likely caused by three weeks of holiday slaughter cutbacks, as well as tough packer bargaining, have caused the January cash market slide. Indeed, if we’re correct in thinking that backlog is largely gone, as indicated by steer carcass weights significantly below year-ago levels in late December and early January, the cash market seems likely to stabilize and/or rise slightly later this week. Packers can point to weak wholesale prices while bargaining with feedyard managers, arguing for sustained seasonal weakness through much of February. But we expect grocer demand to remain comparatively robust in the coming weeks, because grocery store prices fell below year-prior levels late last year and will probably remain below early-2022 levels (although still quite high by historical standards). History shows the market tends to outperform seasonal norms during spring of years when cattle weights are running below year-prior levels.
Technical analysis: Bulls still own the short-term technical advantage in February live cattle futures, although today’s high at $157.85 confirmed the strength of initial resistance at yesterday’s high of $157.975. Still, a breakout above that level would have bulls targeting the Jan. 10 high of $158.825, then the contract high of $159.175. Stiffer resistance likely awaits at the psychological $160.00 level. Sustained support is likely between the 20-day moving average at $157.42 and the confluence of the contract’s 40-day moving average and short-term uptrend line near $156.50. A close below the latter level would have bears targeting $155.00, then $150.00.
Bulls and bears seem to be on equal short-term footing in March feeder cattle futures. Bulls have found solid support at the contract’s 10-day moving average near $182.74, with additional levels of support near Monday’s low of $181.40, the psychological $180.00 level, then at last Thursday’s low of $179.175. Conversely, bears have limited this week’s advance, as indicated by bulls’ inability to mount a serious challenge of resistance at the intersection of the contract’s 20- and 40-day moving averages near $184.50. A close above that point would open the door to a test of recent highs at $187.275 and $188.75, but bears seem likely to make those moves face tough sledding.
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 soymeal needs covered in the cash market through February.
