Livestock Analysis | November 7, 2023
Price action: Hog futures rose modestly on the day, with nearby December gaining 50 cents to $72.90 after surging to six-week highs, then reversing.
Fundamental analysis: The hog and pork complex continues exhibiting signs of firmness despite the strong tendency for seasonal weakness at this time of year. For example, the CME lean hog index for last Friday was officially stated at $76.23, down 22 cents this morning. That matched expectations. But instead of resuming the seasonal slide yesterday, Monday’s preliminary figure rose 4 cents to $76.27.
Packers may have been encouraged to boost their bids modestly by yesterday’s big wholesale market advance, with pork cutout leaping $4.33 to $91.61. As has been quite normal this fall, the big rise was mostly powered by a surge in pork belly values, although ribs were the only cut to post a daily decline. In contrast, today’s drop was caused by across-the-board losses by the various cuts, with bellies again leading the way lower. Still, today’s midsession quote for pork cutout at $87.74 easily remains within the recent sideways range. The big wholesale surge likely powered today’s early futures advance, whereas the noon weakness, along with big losses in other futures markets, apparently undercut hogs.
Nearby futures are still trading at modest discounts to the cash index, but the diminished difference indicates the industry is now expecting a much more muted cash decline over the next five weeks (until the December future expires on Dec. 14.
Technical analysis: While bulls clearly failed to sustain today’s early advance, they retain the short-term technical advantage in December hog futures. Initial resistance likely remains between the highs posted last Thursday and Friday at $73.375 and $73.625, respectively, with backing from today’s top at $74.275. A breakout above that point would open the door to a retest of the Sept. 28 high at $76.10. Today’s low places initial support near $72.425, but much stronger support persists at the 40-day moving average near $71.36. That’s backed by the contract’s 10- and 20-day moving averages near $71.00 and $69.50 levels, 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 fell $2.55 to $178.775, settling near the session low. January feeder cattle futures fell $5.60 to $230.825, settling near session lows. Expiring November feeder futures fell $4.95 to $232.225.
Fundamental analysis: Cattle futures underwent heavy selling pressure throughout the session as technicals continue to erode. Despite the climb in the weeks following the bearish Cattle on Feed report in October, prices have since reversed lower, giving up nearly two weeks of gains in three sessions. There have been early indications of another bearish Cattle on Feed report late next week, which could be diminishing traders’ appetite for carrying cattle longs over the coming weeks.
Cash cattle trade has started off slow this week, though early prices have came in at $181.00, well below last week’s average of $184.89. This seemingly encouraged futures bears’ as selling persisted throughout the session. The recent drawdown in deferred fed cattle futures is likely to discourage feeders over the winter months, which improves the outlook for next spring, though some near-term pressure is likely.
Wholesale beef prices proved relatively steady at midsession as both Choice and Select are near recent support zones. Choice cutout rose 69 cents to $302.41 as Select rallied 36 cents to $270.72. The Choice/Select spread has continued to widen, further showcasing the tightness of Choice beef supplies, which could limit the downside in cash cattle this week.
Feeder cattle fell sharply on the day as January futures made a new for-the-move low. This is despite relative strength in the cash market and a floundering corn market.
Technical analysis: December live cattle futures broke the recent uptrend stemming from the October lows. A seven-week downtrend remains on the daily bar chart; bears are targeting the October low at $177.30, with support at the 200-day moving average, currently at $178.15 on the way. Further support stands at $175.85. Bulls are targeting initial resistance at the psychological $180.00 mark, backed by $181.425, then the 10-day moving average at $182.15. Bulls’ ultimate target is a daily close above downtrend resistance at $184.50.
January feeder cattle futures made a new for-the-move low on renewed selling strength. Bears retain full control of the technical advantage. Bulls are seeking to defend psychological $230.00 support, with little backing until $227.00. On a bounce, bears are looking to defend resistance at $233.35, then $235.00, with further backing from $237.70.
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.
