Livestock Analysis | October 24, 2023
Price action: Nearby December hog futures ended Tuesday having edged up 20 cents to $66.375, while the deferred contracts suffered moderate losses.
Fundamental analysis: Hog traders were likely somewhat unsure of their footing today since the USDA report from which the CME hog index is calculated was delayed by packer submission problems. Thus, Monday’s preliminary quote for the index was not available. As expected, last Friday’s official quote for the index fell 72 cents to $79.07, which means the December futures ended the day almost $13.00 under cash. The industry is apparently expecting substantial seasonal weakness through the fourth quarter and into early 2024, with the February contract closing about $10.00 under the index.
There is little reason to expect the bearish atmosphere dominating current futures trading to diminish Wednesday. The afternoon release of the monthly USDA Cold Storage report, as of September 30, could prove interesting. It will give a read on the latest U.S. inventories of frozen pork, which will offer indications as to the strength of pork demand last month. It will also state ending-September ham stocks, which traditionally mark the annual peak in those numbers before the wholesale and retail industries start drawing on those supplies to meet demand for the holiday season. If we’re correct in anticipating a repeat of the multi-year lows posted in August, this could provide background support for the hog/pork sector.
Technical analysis: Although the nearby December contract has edged up so far this week, bears still hold the short-term technical advantage. Initial support extends from today’s low at $65.95 to yesterday’s low at $65.675 to last Friday’s bottom at $65.40. Those are backed by psychological support at $65.00, but a close below that point would have bears targeting the $60.00 level. Today’s high places initial resistance at $67.40, with backing from the 10-day moving average near $68.00. A push above that point would open the door to a retest of the psychological $70.00 level.
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 all corn-for-feed and soymeal needs covered in the cash market through November.
Price action: Live cattle futures traded mixed Tuesday, with nearby contracts rising modestly while their deferred counterparts declined. The expiring October contract gained $1.75 cents to $180.00, while most-active December edged up 27.5 cents to $178.625. Expiring October feeder futures rebounded $1.80 to $239.425, while November fell 37.5 cents to $235.425.
Fundamental analysis: Bears proved unable to force a significantly bearish followthrough to Monday’s big breakdown in live and feeder cattle futures today. That reflects the fact that the plunge carried futures prices well below the latest cash quotes. For example, having the October live cattle future trading around $178.00 puts it about $8.00 below last week’s cash average and about $6.00 below the modest Iowa trading that took place at $183.85 yesterday. That contract expires a week from today (10/31). October feeder futures rebounded substantially due to the disparity between cash and futures, with that contract expiring at noon Thursday (10/26) and the latest feeder index quote (which it will cash-settle against) at $243.56.
The short-term cattle outlook depends heavily upon how willing feedlot managers will be to take sharply lower bids for their cattle this week. At least one Iowa grower apparently took the money and ran yesterday, but given the active sales that took place over the past three weeks, many seem unlikely to need to move cattle aggressively at this time. Sustained wholesale strength, as indicated by choice and select cutout values at $305.75 (up $1.21) and $283.31 (up $2.29), respectively, at midsession today will also tell them packers aren’t hurting that badly either. The drop of just about $2.00 in Iowa also suggests the futures market will have to correct higher in the days ahead, but news of larger reductions in other areas could spur fresh futures selling.
Feeder futures might have proved stronger, especially with corn futures slipping again, but a huge advance in soybean meal futures, which seemed to mark the resumption of the recent rally, probably limited bullish interest in feeders as well (due to the prospective increase in the cost of feed).
Technical analysis: Bears still hold the short-term technical advantage in December live cattle futures, especially after bulls could sustain only a small portion of today’s intraday rebound. Initial support at yesterday’s low of $178.175 is closely backed by today’s low of $177.30. A drop below the latter would have bears targeting the psychologically important $175.00 level. Look for psychological resistance at $180.00, then at today’s high of $181.425. A close above that point would open the door to a retest of the $185.00 level.
Bears clearly hold the short-term technical advantage in November feeder futures as well. Bulls proved unable to keep the close above yesterday’s close, so initial support at the psychological $235.00 level looks tentative. Today’s low at $234.225 looks like stronger support. Bears are likely targeting the $230.00 level. Expect initial resistance at the contract’s 200-day moving average near $237.91, with backing from the psychological $240.00 level. Yesterday’s high at $241.60 is likely to act as significant resistance as well.
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 all corn-for-feed and soymeal needs covered in the cash market through November.
