Livestock Analysis |February 21, 2023
Hogs
Price action: April lean hog futures jumped $3.825 at $89.10 today, nearer the session high and hit a five-week high.
Fundamental analysis: Solid cash hog market fundamentals and bullish charts are driving the futures market sharply higher. There is good wholesale pork market strength this week, with cutout value up $5.63 on Monday and up another 27 cents at midday today, to $87.99. Gains were led by hams. Movement at midday was 158.75 loads. The CME lean hog index was 56 cents higher today, at $76.41 and extending the recent string of gains. Monday’s preliminary figure is $76.76, up another 35 cents. The national direct five-day rolling average cash hog price today was quoted at $76.99. Still, the larger-than-normal futures premiums in nearby contracts may keep traders cautious about adding to those premiums this week.
A move in April live cattle futures to a new contract high today also supported buying interest in lean hog futures.
The hog market’s upside in the coming weeks could be substantial if USDA is correct in indicating likely 2% annual supply reductions into early summer. However, increased hog numbers since the first of the year suggest hog marketings may not fall as sharply as expected, if at all, which in turn could limit the size of the seasonal spring price advance.
Technical analysis: Lean hog futures bulls have gained the overall near-term technical advantage. A fledgling price uptrend is in place on the daily bar chart. The next upside price objective for the hog bulls is to close April prices above solid chart resistance at $92.00. The next downside price objective for the bears is closing prices below solid technical support at $85.00. First resistance is seen at today’s high of $89.875 and then at $91.00. First support is seen at $88.00 and then at $87.00.
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 climbed $1.175 to a new high close at $164.75, while most-active April advanced 45 cents to $165.10. March feeder futures gained 35 cents to $186.875.
Fundamental analysis: Last week’s cash market advance, which carried the five-market average up $1.55 to $161.17, powered today’s futures advance, with the close posted by the expiring February contract implying cash prices will rise another $2.00-$3.00 over the next week (when the Feb. contract expires on Feb. 28). The April future ended the day just 35 cents over February, showing the industry remains quite skeptical of the cash market’s ability to sustain the advance beyond the very short term. We remain more optimistic, relying upon research that shows the usual winter/spring advance tends to be larger and sustained longer when steer weights are running below comparable year-ago levels, which is very much the case this year.
The wholesale market is helping power the advance, with choice cutout building upon Monday’s solid gains today. Choice cutout jumped $3.83 to $286.72 at midsession, while select values surged $2.57 to $270.52. The choice quote is only slightly below its early-January 2023 and January 2022 highs and seems set to challenge the $300 level for just the third time (after the spring-2020 and mid-2021 price spikes). Select beef is still a good bit below its January 2022 peak, but still looks like it will continue climbing in the short term.
The feeder index slipped 20 cents to $182.59 today. Anticipation of a dip likely limited today’s advance in feeder futures, although when viewed considering concurrent gains in soybeans, meal and corn, the feeder rise was still rather impressive.
Technical analysis: Bulls still own the short-term technical advantage in April live cattle futures, although their inability to sustain the early advance is a slight cause of concern. Look for initial resistance extending from the Feb. 13 high of $165.25 to last Friday’s high at $165.40. That range is backed by today’s high of $165.775. The continuation chart implies added resistance around $167.00, then the psychological $170.00 level. Today’s low of $164.325 confirmed initial support at the 10-day moving average near $164.31. A drop below that level would have bears targeting the 20- and 40-day moving averages near $163.41 and $162.325, respectively.
Current March feeder futures priced just a few dollars below their January and February highs suggest bulls have the short-term technical advantage, but their inability to keep prices from sliding lately implies a weakening position. Today’s close only slightly above initial support at the contract’s 10-day moving average near $186.78 suggests that support is tentative, but the intra-session bounce from the 20-day moving average near $185.73 indicates that support is much stouter. That’s backed by the 40-day moving average near $185.26, but a close below that level would likely have bears targeting $180.00. Today’s high marked initial resistance at $187.40, with additional resistance ranging from that point up to the Feb. 7 high of $188.575. A close above that point would open the door to a test of the $190.00 level, with a follow-through advance likely having bulls targeting $195.00.
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
