Livestock Analysis | November 29, 2023
Advice: We advise livestock producers to extend corn-for-feed and soymeal coverage by four weeks in the cash market through December.
Price action: February lean hog futures rallied $1.075 before ending the day at $70.10, while nearby December futures edged up 5 cents to $68.975.
Fundamental analysis: Lean hog futures continued to rally despite weakness in the nearby December contract, indicating recent selling pressure may have been overdone. After making a fresh contract low on Tuesday and bouncing from that level, the February contract continued higher on Wednesday, remaining above December futures after breaking below that contract on Monday. While February futures are back above December, both are still priced below the CME lean hog index, which unofficially fell 13 cents to $71.53, this points to uncertainty in the cash market. Tuesday’s calculation (remember the index is a two-day average) is seen as rising from the prior day, pointing to renewed firmness in the cash market. That strength is reinforced by wholesale pork prices rising 39 cents at midsession to $85.19 after falling sharply on Tuesday. Today’s midsession gain came despite a $9.87 drop in bellies to the lowest level since early June.
Cash hog prices seem to be suffering from hog supplies exceeding levels the USDA had anticipated in the fourth quarter of this year. Hog weights continue to run high and that is likely to remain the case into Christmas as the three weeks surrounding the holidays are likely to see reduced slaughter counts due to Christmas and New Year’s falling on Mondays.
Technical analysis: While bears still own the near-term technical advantage in February lean hog futures, their grasp is weakening as the early-week drop looks more and more like a capitulation low. Bulls are eyeing initial resistance at the 10-day moving average, currently at $71.30, with backing from last Friday’s gap lower from $71.40-$71.575. Additional buying would target $72.60. Meanwhile, support stands at the psychological $70.00 mark, backed by today’s low of $67.875, then the contract low of $65.80.
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 corn-for-feed and soymeal coverage by four weeks in the cash market through December.
Advice: We advise livestock producers to extend corn-for-feed and soymeal coverage by four weeks in the cash market through December. Cattle and feeder futures proved able to sustain only a modest followthrough to Tuesday’s big advance.
Price action: December live cattle futures rose 25 cents to $171.90, while most-active February gained 65 cents to $173.475. January feeder futures rallied $1.15 to $222.20.
Fundamental analysis: Live and feeder cattle futures opened Wednesday’s session strongly as traders anticipated a sizeable followthrough to Tuesday’s across-the-board surge. However, bulls were able to sustain only a portion of those gains. The inability to continue climbing likely reflected Tuesday’s modest cash trading at flat-to-weak prices, which was surprising given the strength of the futures jump. Country trading has been relatively light so far this week, with late-week activity very likely depending upon events in the futures and wholesale markets Thursday and Friday.
Bears were probably encouraged by midsession wholesale slippage. Choice cutout dipped 21 cents to $297.96, while select cutout fell $1.74 to $264.61. On the other hand, the latest choice quotes in the $297.00 to $298.00 range are $3.00 to $4.00 above the lows seen late in the week ended Nov. 17. Today’s activity also pushed the Choice/Select spread to $33.35, thereby implying extreme tightness of high-quality beef supplies. These developments apparently indicate feedlot marketings are quite current, which in turn suggests recent cash and futures weakness has been overdone.
The CME feeder index apparently gave back a big portion of the $5.13 jump posted for last Friday. Monday’s official quote fell $3.42 to $226.96 when quoted Tuesday afternoon, thereby greatly reducing the huge discount built into the nearby January contract. Even with today’s follow-through advance, January futures ended the day about $5.00 below the cash equivalent price.
Technical analysis: Bears still own the short-term technical advantage in February live cattle futures, although one can argue that Monday’s low will mark a significant bottom. Today’s low places initial support at $172.50, with last Friday’s low seemingly representing additional support at $170.475. Look for psychological support at $170.00, with a drop through that level likely having bears again targeting Monday’s low at $168.625. Today’s high puts initial resistance at $173.875, with backing from the 10-day moving average of $174.50 and psychological resistance at $175.00. A rebound above the latter point would have bulls looking to test the $180.00 level.
The short-term technical advantage in January feeder futures also belongs to the bears. That might change if bulls can overcome initial resistance at today’s high of $223.575, as well as the 10-day moving average near $224.78 and the psychological $225.00 level. Such an advance would have bulls targeting the $230.00 level in short order. Initial support extends from today’s low at $220.10, down to last Friday’s low at $219.15. A breakdown below the latter point would open the door to a fresh test of Monday’s low at $212.125.
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 corn-for-feed and soymeal coverage by four weeks in the cash market through December.
