Livestock Analysis | February 1, 2023

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Hogs

Price action: Nearby February lean hog futures sagged another 90 cents to $73.975 Wednesday, while most-active April dove $2.125 to $84.30.

Fundamental analysis: Pessimism about the demand outlook for hogs and pork surged again Wednesday. That was made most evident by the summer contracts dipping into the $100-$101 area, whereas the market spent months above that level in 2021 and 2022. An excess of supplies, as seemed to be the case through much of January, is unlikely to persist into spring. Today’s hog slaughter soared well above the year-ago total of just 426,000 head, but we strongly suspect severe weather caused the big year-ago cutback. We still think the tightening of market-ready supplies will cause a significant cutback in the weekend kill and possibly pull the weekly total well below year-ago levels. That would be consistent with the USDA’s December Hogs & Pigs report indicating hog supplies routinely falling 2% below early-2022 levels through at least May. The fact that Iowa-southern Minnesota pig weights, which averaged 286.8 pounds per head last week, fell 3.5 pound below the comparable year-ago level also points to tightening supplies.

And yet, the official Monday quote for the hog index dipped 13 cents to $72.58 today, with Tuesday’s preliminary figure slipping another 7 cents to $72.51. Wholesale demand clearly isn’t helping the bullish cause, as indicated by the 29-cent midsession dip to $79.96. It seems rather apparent that consumer demand for beef and pork is proving surprisingly weak. Still, if we’re correct in thinking hog supplies have begun declining on a seasonal and cyclical basis, the reduced supply will likely power an advance. It remains to be seen if consumer demand resurges as spring nears.

Technical analysis: Today’s April futures breakdown put bears back in charge of the technical situation. Bulls have to hope tentative support at last Thursday’s low of $83.70 holds in the days just ahead. If not, they’ll have to rely on support at today’s low of $82.75 holding. If that fails, a test of the psychological $80.00 level might be forthcoming. Resistance at the 10-day moving average near $85.67 is closely backed by today’s high of $86.13. The 20-day moving average near $87.42 is reinforcing yesterday’s high of $87.45. A close above that area would have bulls targeting the 40-day moving average near $90.40.

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: Nearby February live cattle futures slid 42.5 cents to $158.425 Wednesday, while most-active April fell 80 cents to $162.225. March feeder futures tumbled $2.90 to $183.25.

Fundamental analysis: Traders were apparently unimpressed with Tuesday’s bi-annual USDA Cattle report, since most of the numbers generally matched industry expectations. Still, the numbers were long-term bullish, with the total U.S. cattle population as of January 1 plunging 3% to 82.274 million head. That’s the smallest U.S. cattle herd since 1962. The beef cow herd fell 4% annually, while the supply of replacement beef heifers was slashed by 6%. One can certainly argue that these numbers don’t make a great deal of difference to the fed cattle market, but having the total U.S. feedlot population as of Jan. 1 fall 4% also implies persistently tight fed cattle supplies going forward. We expect feedlot operators to demand higher prices for their cattle this week, especially in the wake of Monday’s huge rise in most-active April futures.

Weak wholesale prices are apparently depressing ideas about the outlook. Choice cutout fell again at noon today, with the $1.33 drop carrying the quote down to $264.76. And yet, we expect this week’s cattle kill to fall several percentage points below year-ago, with lower steer and heifer weights further reducing beef production. Again, consumer demand seems to be suffering under the current environment, but the situation should improve if the recent equity market advance truly presages stronger U.S. and global economies in the weeks and months ahead.

Feeder futures tanked despite the Cattle report’s implication of persistently tight calf and yearling supplies during the coming months. Mixed grain and soy prices probably exerted little influence over the market. Traders apparently doubt feedlot demand for replacement yearlings will be very strong in the coming months. 

Technical analysis: Bulls still hold the technical advantage in April live cattle futures, with initial support at today’s low of $162.00 likely to prove rather stout. Look for secondary support at last week’s high of $161.78, then at the intersection of the 10- and 20-day moving averages near $161.20. A drop below that point would have bears targeting the 40-day moving average near $160.64, then the psychological $160.00 level. Today’s high at $163.30 confirmed resistance extending from that point up to yesterday’s contract high of $163.57. A breakout above that zone would have bulls targeting the $165.00 level, then $170.00.

Today’s dive in March feeder futures seemed to shift the short-term technical advantage back to the bears, since it sent the market back below prior support at the 20- and 40-day moving averages near $184.01 and $184.68, respectively.  Those levels now represent initial and secondary resistance. Bulls would likely need to see a push back above those levels before they would look to challenge resistance at today’s high of $186.575. The 10-day moving average near $183.12 now marks initial support, with close backing from today’s low at $182.70. A close below that area would have bears targeting the psychological $180.00 level, then the January low at $179.175.

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.

 

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