Livestock Analysis | October 10, 2023
Price action: Expiring October hog ended Tuesday having slipped 2.5 cents to $81.95, while most-active December fell $1.05 to $71.425.
Fundamental analysis: Although the hog and pork complex is showing surprising signs of stability, hog futures followed through upon Monday’s weakness again today. The CME confirmed last Friday’s preliminary quote for the hog index at $82.46, down 57 cents from last Thursday. Monday’s preliminary calculation slipped another 20 cents to $82.26. However, we would point out that the single-day average for Monday at $82.31 topped Friday’s single-day figure at $82.22 (remember that the index is a two-day weighted average), confirming emerging cash market firmness early this week.
Pork cutout did fall $1.50 at midsession today, but that follows Monday’s closing quote up $1.84 from last Friday to $95.06. And while Monday’s advance was largely powered by a $13.39 bounce in pork belly values, today’s morning reversal reflected a $21.06 dive in bacon. Despite recent weakness, we still view the fourth-quarter outlook as being a bit less negative than usual due to a comparative shortage of hams available for the holiday season this year. Having last week’s slaughter dip back below the comparable year-ago level may also have given bearish trader’s pause, since they have been used to seeing weekly kills top 2022 levels through the third quarter.
Technical analysis: Bears still own the short-term technical advantage in December hog futures, especially after bulls again proved unable to force a push above resistance marked by the contract’s 40-day moving average near $73.39. The subsequent drop reestablished initial resistance at the 10-day moving average near $71.76. A breakout above the 40-day moving average would have bulls targeting the Sept. 28 high of $76.10, then the Sept. 20 peak at $78.70. Today’s late weakness put initial support at the low of $71.35, with backing from last Friday’s low at $71.15. Look for psychological support at the $70.00 level, with a drop below that point opening the door to a test of the Oct. 4 low of $68.00.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: December live cattle futures fell 35 cents to end the session at $185.00, while nearby October futures rallied 20 cents to $182.575. November feeder cattle futures rose 70 cents to $250.35, while expiring October futures rose $1.05 to $247.95.
Fundamental analysis: Cattle futures surged on the open but struggled to maintain gains as wholesale beef prices slipped. Traders are concerned that packers will have the majority of their needs met for the current week and delay purchases as long as possible in order to try to tame cattle prices. Despite the recent downturn in wholesale prices, cash cattle prices have remained firm, forcing margins into the red for packers. Wholesale beef is likely to see seasonal pressure in the coming month, further discouraging packers from paying up for cattle. Tight market-ready supplies may limit the slippage seen in cash cattle prices, but packers’ seeming unwillingness to pay up may limit that effect. Choice cutout fell 43 cents at midsession to $302.99 while Select dropped $1.47 to $276.03. Movement was an impressive 137 loads.
The discount nearby October feeder cattle futures may have limited the downside in nearby feeder cattle futures today. The weakness seen in the corn market also gave feeders strength relative to the fats market on Tuesday.
Technical analysis: December live cattle futures remain in a bear flag on the daily bar chart. Bears retain the short-term technical advantage following last week’s breakdown and are seeking a daily close below $184.60 support, which would imply a follow-through breakdown from the recent consolidation pattern. Additional support comes in at $183.40, though a trip to $182.50 support would be likely. Bulls are seeking a daily close above $187.00 before stiffer resistance at $188.50.
November feeder cattle futures showed relative strength today as corn futures struggled. Prices have pivoted around the $250.00 area for six sessions in a row. A bear flag is likely forming on the daily bar chart, which would be confirmed with a daily close below $248.225 support. Additional support lies at $247.50, then the psychological $245.00 level. Bulls are seeking a close above $252.00 resistance to negate the bear flag, with additional resistance lying at $254.80.
What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
