Livestock Analysis | December 7, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Continued seasonal weakness again weighed on hog futures Thursday, with the expiring December contract closing unchanged at $67.55 and most-active February tumbling $1.525 to $67.775.

Fundamental analysis: Hog traders are seeing little reason for optimism about the hog and pork outlook at this juncture. As pointed out previously, seasonally large hog supplies are being amplified by increased numbers well above the essentially unchanged levels implied by the September USDA Hogs & Pigs report. In addition, hog weights have surged. For example, hogs sold in the Iowa-southern Minnesota region last week averaged 290.6 pounds/head. That easily topped the year-ago figure at 286.4 pounds, as well as the five-year average. On the other hand, it’s actually below the comparable 2021 figure at 291.1 pounds, which we view as evidence the market isn’t being completely swamped by hog marketings. Still, with the hog index officially stated for Tuesday at $69.43 this morning and Wednesday’s unofficial number dipping another 32 cents to $69.12, as well as pork cutout slipping to a fresh fall low at $82.63 at midsession, the short-term outlook isn’t promising.

We believe reduced wholesale and retail pork prices are boosting export and domestic consumer demand, respectively. If/when production slows, likely after the holidays, the complex may have a chance to turn higher. The current situation seemingly involves the market trying to find a short-term bottom.

Technical analysis: Bears are seemingly in full control of the short-term technical situation in February hog futures. Today’s drop marked a clear departure from the recent pattern of testing resistance at the contract’s 10-day moving average (now near $69.37). Resistance at today’s high of $68.875 is backed by the 10-day moving average, then the psychological $70.00 level. A breakout above that point would have bulls targeting the 40-day moving average near $72.73. Today’s low places support at $67.425, with likely backing from the Nov. 27 low of $66.825, then the Nov. 28 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: You have all corn-for-feed and soymeal needs covered in the cash market through December.

 

 

Cattle

Price action: Bulls couldn’t sustain early Thursday strength in cattle and feeder futures. The expiring December live cattle contract ended the day at $162.35, down $1.10 on the day. Most-active February cattle dropped $1.025 to $162.525, whereas January feeder futures departed from the general decline by posting a 12.5-cent rise to $210.275.

Fundamental analysis: Sustained cash market weakness and sliding wholesale values seemingly undercut the cattle and feeder complex Thursday. Fed cattle trading in the $170.00-$171.00 range apparently accelerated Wednesday, thereby setting the tone for trading today and tomorrow. Steer dressed weights for the week ended November 25 reached 940 pounds, up 4 pounds from the previous week’s record and 13 pounds above year-ago. It’s hard to argue against the idea feedlots are losing currentness, although we suspect comparatively nice fall weather over the Plains is boosting feedlot performance. We also wonder if Thanksgiving played a role in raising that figure.

Just as worrisome for bulls was the direction take by choice beef prices this week. After ending last week just below $300.00, choice cutout fell to the $290.00 area Wednesday afternoon and dropped another $1.94 to $288.62 at midsession today. Select cutout rose 44 cents to $260.34 at noon, which reduced the choice-select spread to $28.28. That’s still very wide, but certainly down significantly from last week. We still view the current cattle/beef breakdown as being largely seasonal in nature and expect the market to find a short-term bottom before rebounding in the new year.

The latest quote for the CME feeder index inched up another 55 cents to $224.23 Wednesday afternoon. That rise, as well as the large (approximately $14.00) discount already built into nearby January futures, likely supported the contract Thursday. However, traders are almost surely anticipating a sharp drop in the index when it’s published next Monday, when this week’s direct feeder cattle trading is added to the Friday calculation to be released at that time.   

Technical analysis: Bears are clearly dominating trading in February live cattle futures, with today’s drop carrying the market to a fresh for-the-move low. The late-session close just above tentative support at today’s low of $162.40 suggests vulnerability to fresh losses. Bears are targeting the $160.00 level and would be shooting for $150.00 if psychological support at that level fails. Today’s high marked initial resistance at $165.225. A move back above that level would face stiff resistance at this week’s early lows around $165.65, then at the 10-day moving average near $168.91.

Bears clearly own the short-term technical advantage in January feeder futures as well, although the large discount to the feeder index has likely limited losses this week. Initial support at today’s low of $210.00 is tentatively backed by Monday’s low at $209.15. A breakdown below that point would have bears targeting $200.00. Today’s high marked initial resistance at $213.60, with additional resistance likely arising at the 10-day moving average at $215.52.

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 December.

 

 

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