Livestock Analysis | February 16, 2023
Hogs
Price action: April lean hog futures fell 72 1/2 cents to $85.775 and nearer the session high.
Fundamental analysis: The lean hog futures market today saw more chart consolidation after recent gains. Bulls still have confidence the cash hog and futures markets have established near-term bottoms. The latest CME lean hog index rose another 44 cents to $75.62 as of Feb. 14, marking the 10th straight daily gain and up 14 of the last 16 days. Today’s preliminary figure for Wednesday is $75.85, up 23 cents. April lean hogs still hold just over a $10 premium to today’s cash index quote. The noon pork report showed cutout value up $2.14 at $83.08, led by gains in bellies. Movement at midday was decent at 147.89 loads, even with the cutout value well above $80.00, which is impressive.
USDA today reported net U.S. pork export sales totaled 45,000 MT for 2023, which was up 56% from the previous week and 30% above the 4-week average. China purchased 4,100 MT of U.S. pork in the latest reporting week.
Seasonal factors--declining hog supplies and weights, as well a potential improvement in consumer pork demand--suggest hog prices will continue to firm.
Technical analysis: Lean hog futures bears still have the overall near-term technical advantage. However, a six-week-old downtrend on the daily bar chart has been negated to suggest a market bottom is in place. The next upside price objective for the hog bulls is to close April prices above solid chart resistance at $90.00. The next downside price objective for the bears is closing prices below solid technical support at the February low of $81.275. First resistance is seen at this week’s high of $87.80 and then at $89.00. First support is seen at today’s low of $85.10 and then at $84.00.
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 soymeal needs covered in the cash market through February.
Cattle
Price action: Expiring February live cattle futures edged up 22.5 cents to $162.775 today, while most-active April sank 55 cents to $164.075. March feeder futures tumbled $1.10 to $186.225.
Fundamental analysis: Bears clearly remain less than impressed with the prospects for sustained live cattle gains, as indicated by the today’s April futures setback in the face of consistently bullish news. That seemingly reflects concerns about the economic outlook, as best indicated by midweek equity market losses, as well as worries about consumer demand for red meat. We believe these concerns are overblown in the short-run, sticking with historical indications that red meat demand doesn’t suffer that significantly except in the very worst conditions. We would also point out that retail beef prices have been slipping lower since fall 2021.
The latest news seems quite supportive, with light cash cattle trading having occurred Wednesday at $160.71. That’s up $2.45 from the comparable week-ago figure and $1.09 higher than last week’s average. We expect this week’s average result will edge even higher. And after sustaining a sizeable advance Wednesday, beef cutout continued climbing today. Choice cutout jumped $3.86 to $279.53, while the Select quote advanced $2.10 to $263.29. The Choice-Select spread widened back to $16.24, thereby tending to confirm the market currentness implied by falling steer weights. Today’s weekly USDA report stated steer dressed weights at 908 pound/head, down 22 pounds from last year. That difference is likely to diminish in the short run, but we expect year-to-year reductions to remain substantial. All these developments, along with the market’s history of strength into early spring, point to a sustained cattle rally.
Mixed grain and soy complex activity today likely exerted mixed influence over feeder futures as well. Thus, the yearling market followed fed cattle lower. Their large premiums above the CME index also render the deferred feeder contracts vulnerable to negative influences.
Technical analysis: Although bears proved able to force a close below the April live cattle contract’s 10-day moving average, bulls still own a strong technical advantage in that market. The short-term moving average now represents initial resistance and is backed by resistance extending from today’s high at $164.825 to Monday’s contract high at $165.25. A close above the latter point would have bulls targeting early-2015 highs around $167.00, then the psychological $170.00 level. Today’s low marked initial support at $163.50, with a drop below that level potentially opening the door to a test of the 20- and 40-day moving averages at $162.95 and $162.02, respectively.
Recent trading in March feeder futures has been mostly sideways, but bulls still own the short-term technical advantage. The drop below the 10-day moving average near $186.82 made that level initial resistance, and it’s backed by resistance extending from today’s high of $187.225 to last week’s high at $188.575. A close above the latter point would open the door to attest of $190.00, with bulls ultimately targeting the $200.00 level. Initial support emerged at today’s low of $185.825. It likely extends to Monday’s low of $185.55, with further backing located at the intersection of the contract’s 20- and 40-day moving averages near $185.25. A close below that point would have bears targeting $180.00.
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 soymeal needs covered in the cash market through February.
