Livestock Analysis | October 16, 2023
Price action: December lean hog futures fell $1.20 before settling at $68.30, nearer the session low.
Fundamental analysis: Lean hog futures faced heavy selling throughout the session as the decline in the CME lean hog index resumed. December futures are pricing in a steep decline over the coming two months, below levels seen the last two Decembers. The December contract is currently trading near the lowest level since January 2021, when prices were rallying from pandemic driven lows. We feel the bearish expectation laid out in futures may not come to fruition, as demand has improved and supplies remain tight, particularly in hams, which will likely support cash hog prices over the coming months. Nevertheless, the CME lean hog index turned 31 cents lower to $82.11 today, ending a two-day rally. The preliminary calculation for tomorrow puts the index down an additional 51 cents to $81.60 tomorrow (as of Oct. 13).
Pork cutout ended a week-long losing streak today at midsession, assuming strength persists in afternoon trade. Carcass values rose $1.39 as a whole, with gains seen across all cuts excepts loins and butts. Movement has continued to remain firm, showing continued retailer demand for pork. Movement at midsession totaled 121.79 loads.
Technical analysis: December lean hog futures continue the technical downtrend on the daily bar chart, with bears holding the technical advantage. Some profit taking is possible, but a test of the recent low at $68.00 is likely, which is backed by support at the May 26 low at $67.325. Bulls are seeking to challenge downtrend line resistance at $70.75, which is backed by $71.61, then firmer resistance at $72.72.
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 should cover all corn-for-feed and soymeal needs in the cash market through October.
Price action: December live cattle fell 20 cents to $186.55 and nearer the session low. November feeder cattle dropped $1.65 to $249.925 and nearer the session low.
Fundamental analysis: The cattle futures bulls are still a little squeamish to start the trading week, with the Middle East crisis still unfolding and the potential for some much keener risk aversion to develop quickly. The solid gains in the U.S. stock market today did limit selling pressure in the live cattle futures market.
The cattle bulls got little traction today from stronger-than-expected cash cattle trade last week, with traders looking for firmer prices again this week. Last week’s cash cattle trade averaged $184.30, up $1.58 from the week prior. However, packers bought a lot of cattle last week, which may limit their willingness to actively raise cash bids again this week. The noon report today showed Choice grade boxed beef cutout up $1.39 to $302.19, while Select grade rose $2.23 to $277.72. Movement at midday was decent at 54 loads. The Choice-Select spread is presently at $24.47, still suggesting relatively tight market-ready animals in the feedlots.
Traders are looking ahead to USDA’s Cattle on Feed Report out Friday afternoon, will likely push cash cattle negotiations late into the week. Traders are looking for the COF report to again show lower feedlot numbers, with placements the key to the report and likely to be down.
Technical analysis: The live cattle futures bulls have the firm overall near-term technical advantage. The next upside price objective for the bulls is to close December futures above solid resistance at the contract high of $192.05. The next downside technical objective for the bears is closing prices below solid technical support at the August low of $181.925. First resistance is seen at last week’s high of $188.125 and then at $189.00. First support is seen at $186.00 and then at $185.00.
The feeder cattle futures bulls and bears are on a level overall near-term technical playing field. The next upside price objective for the feeder bulls is to close November futures prices above technical resistance at $258.50. The next downside price objective for the bears is to close prices below solid technical support at $245.00. First resistance is seen at today’s high of $252.70 and then at last week’s high of $253.85. First support is seen at the October low of $248.225 and then at $247.00.
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 should cover all corn-for-feed and soymeal needs in the cash market through October.
