Livestock Analysis | October 31, 2023
Price action: Hog futures continued their recent advance, with the nearby December contract climbing 55 cents to $71.725.
Fundamental analysis: Cash hog prices in the form of the CME hog index are still declining seasonally. Last Friday’s official quote matched the preliminary calculation at $77.51, down 44 cents. Monday’s USDA numbers put yesterday’s unofficial quote at $77.13, down another 38 cents. Pork cutout also fell 88 cents to $86.98 at noon, but that only came after it ended Monday having surged $1.46 to $87.86.
The recent shift in hog/pork sector psychology apparently reflects a much slower pace of decline by the cash market than previously anticipated. Moreover, pork cutout has moved generally sideways over the past two weeks, which might easily translate into firming cash prices as well. Thus, futures traders have seemingly concluded the late-year outlook is not as poor as previously expected, causing the recent CME advance. We would again point out that the December 2022 hog contract went off the board at $82.25 (although the hog index eventually sagged all the way to $71.18 last spring). Thus, even if forthcoming hog supplies modestly exceed expectations largely unchanged from late-2022 levels, it’s becoming rather easy to think futures in the $70.00’s are underpriced, especially if persuaded that current pork demand is proving stronger than seen late last year. We believe this is indeed the case, due in part to the comparative shortage of hams and turkeys available for the holiday season and in part to grocers having cut retail pork prices for consumers.
Technical analysis: The bulls’ inability to force a close above solid initial resistance at the December contract’s 40-day moving average near $71.74 implies bears still own a slight technical advantage for the short term. A breakout above that point would have bulls targeting the contract’s Oct. 6 high of $73.675, then its Sept. 28 and Sept. 20 highs of $76.10 and $78.70, respectively. Initial support is marked by last Friday’s high of $70.625 and today’s low of $70.60. That’s backed by the contract’s 20- and 10-day moving averages near $69.41 and $68.39, respectively.
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: December live cattle futures closed 30 cents higher at $183.55, though expiring October futures went off the board 37.5 cents lower at $183.75. November feeder cattle futures rose just 2.5 cents before settling at $237.70, near mid-range.
Fundamental analysis: Live cattle futures reversed morning losses to close higher, though today’s price action indicates trader uncertainty. Outside markets were volatile ahead of the Federal Reserve’s interest rate decision on Wednesday. Bond selling has stabilized, which has led to stability in the stock market as well as the U.S. dollar index, which remains on recent highs. Crude oil futures continue to trend lower, which is concerning for commodity bulls.
The cash market has provided little clarity on cattle trade thus far this week. With fresh contracted supplies available Wednesday and considerable cattle trade taking place last week, packers can afford to hold off on purchases until next week to try to push their margins closer to the black. Wholesale beef prices slipped at midsession after rising the past two sessions. Choice cutout fell $2.83 to $306.45 while Select fell 84 cents to $280.05. Movement at midsession totaled more than Monday’s reduced total, indicating packers have inventory to move. Meanwhile, the Choice/Select spread remains historically wide at $26.40, showcasing the continued tightness of quality market-ready cattle supplies.
Feeder cattle continue to trade sideways, despite the sustained weakness in the corn market. Feeders led fat cattle lower since the September peak, which is uncommon, indicating the strength seen in fats recently could be short lived if that trend continues.
Technical analysis: December live cattle futures traded below Monday’s low, then rebounded, but were unable to overcome the resistance zone today. This will be key in the next two days for bulls to continue the recent bounce. Prices remain in a seven-week downtrend on the daily bar chart; bulls first objective is closing prices above the top end of last week’s gap lower at $184.425. Further buying would have bulls eyeing resistance at the psychological $185.00 mark, then $186.70. Bears are seeking to take out today’s low of $182.30, backed by the psychological $180.00 level.
November feeder cattle futures continue to trade sideways on the daily bar chart, as prices have traded around the $237.00 mark seven sessions in a row now. Bulls are eyeing a daily close above $238.00 before tackling resistance at $239.95. That’s quickly backed by the psychological $240.00 mark. Bears are looking to close prices below $236.00 support, which is backed by the recent low of $234.225.
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.
