Livestock Analysis | October 18, 2023
Advice: We advise extending corn-for-feed and soymeal coverage in the cash market another four weeks through November.
Price action: December lean hog futures saw a narrow trading range Wednesday, ultimately rising 47.5 cents before settling at $68.025, nearer the session high.
Fundamental analysis: Lean hog futures traded in a tight range throughout the day as cash fundamentals provided little guidance. Wholesale pork prices continue to slip, with the midsession quote falling $1.48 to $88.07, the lowest level since June 8. That marks a near $4.32 drop in the last week, surprising given the relative tightness of pork supplies. The CME lean hog index fell 45 cents today to $81.15 (as of Oct.16). There are packer submission problems at USDA, so the data to calculate the preliminary calculation for tomorrow is unavailable, though given yesterday’s average, another drop is likely. Futures hesitancy to sell further could partially be blamed on the lack of cash market data, surprising given the discount that December futures hold to the index. Traders continue to believe that sustained weakness in the cash market will be the norm over the coming month and a half. December futures continue to price in declines below each of the last two years when pork supplies were somewhat smaller. We continue to believe the downturn may not be as steep as futures currently imply.
Technical analysis: December lean hog futures saw slight corrective buying and maintained Tuesday’s contract low of $67.30, which will remain support into the end of the week. Bears still grasp the technical advantage as prices continue in a steep downtrend on the daily bar chart. Further weakness below this level targets the psychological $67.00 level. Bulls are targeting resistance at $69.64 on further corrective buying, quickly backed by $70.00 downtrend line resistance.
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: NEW ADVICE – Extend cash corn-for-feed and soymeal coverage another four weeks through November.
Advice: We advise extending corn-for-feed and soymeal coverage in the cash market another four weeks through November.
Price action: Expiring October live cattle futures ended Wednesday having risen 22.5 cents to $185.725, while most-active December gained 32.5 cents to $187.20. The expiring October feeder contract fell $1.675 to $247.125, whereas November feeders slid 72.5 cents to $249.725.
Fundamental analysis: The cattle and beef markets continued holding steady Wednesday. As expected, cash market activity Monday and Tuesday was minimal, with only a few head of cattle priced on a dressed basis changing hands. Meanwhile, wholesale beef prices remained firm at midsession; choice beef cutout edged up 38 cents to $305.52 and select gained 36 cents to $278.99. This firmness reflects the persistent tightness of market-ready cattle and beef supplies, which has essentially been the case all year. But we view the latest wholesale strength as signaling surprisingly robust consumer beef demand as well, especially when one considers retail beef prices have been setting fresh records since July.
Our suspicions about the negative impact of record beef prices in grocery stores have created doubts about the sustainability of cattle and beef strength this fall, especially with the grilling season having largely ended and consumer demand traditionally focused more on hamburger and roasts during fall. We still view that as a danger to the outlook if/when grocers continue boosting prices in the meat case, but the market is proving quite resilient and seems able to remain strong in the coming weeks.
After reaching $254.06 on September 22, the CME feeder index slipped to the $252.00 area late last month and has moved even lower lately. The latest quote fell $1.43 to $246.83 as of Monday. The weakness may reflect more active selling by farmers and ranchers since feedlot placements traditionally reach their annual highs during October. Recent gains in corn and soybean meal prices may also be crimping the ability of feedyard managers to sustain elevated bids for replacements.
Technical analysis: Although December live cattle futures again settled below the contract’s 40-day moving average near $187.36 today, bulls still seem to hold a modest short-term technical advantage. Resistance at the 40-day moving average is closely backed by the 20-day moving average near $187.58 and by last Friday’s high at $188.125. But a breakout above the latter point seems likely to open the door to a retest of the psychological $190.00 level, then the contract high at $192.05. The 10-day moving average marks initial support near $186.46, with a band of stout support likely extending from the October 3 low of $185.30 to the October 11 low of $184.25. A drop below the latter point would open the door to a test of the $180.00 level.
Bears seem to hold the short-term technical advantage in November feeder futures, but they have not been able to sustain a drop significantly below the psychological $250.00 level. The band of support extends down to the October 6 low of $248.225. A decisive drop below that point would have bears targeting $245.00. Today’s high largely coincided with initial resistance at the 10-day moving average near $250.85. Added resistance at last week’s high of $253.85 is reinforced by the 20-day moving average near $253.91. The 40-day moving average puts stiffer resistance near $256.96.
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: NEW ADVICE – Extend cash corn-for-feed and soymeal coverage another four weeks through November.
