Livestock Analysis | January 2, 2024
Price action: Hog futures turned sharply lower in seeming anticipation of early-year weakness similar to that seen in early 2023. The February contract led the way lower, losing $2.65 to $65.325 at the close.
Fundamental analysis: As expected, the cash hog market slid to fresh 2023 lows between the holidays, with last Thursday’s official quote for the hog index dipping 22 cents to $65.35. In addition, the quote for Friday/Monday, to be officially published tomorrow, is expected to slide another 30 cents to $65.05. Nearby futures had previously anticipated a traditional early-year rebound, but today’s breakdown put the February contract at a bare premium above the expected quote for the index. This apparently reflects fresh short-term pessimism about the January and early-February outlook, which would generally match the weakness seen in early 2023. Hog slaughter proved surprisingly large at that time. The December Hogs & Pigs report implied January-February slaughter would run 1%-2% over year-ago levels. Given the industry’s routine tendency to top implied short-term slaughter forecasts throughout 2023, pessimism about the short-term outlooks seems warranted. On the other hand, given the huge revisions made to hog population for all of 2022 and 2023 made in the report, that pattern might change.
One big difference from last year is the relationship between hog and pork prices. That is, today’s midsession pork cutout quote rose $1.28 to $86.04, which virtually matched the January 3, 2023 quote at $86.00. But there is a huge contrast in hog prices, with the first quote for the hog index in 2023 coming in at $79.06 about $14.00 over today’s preliminary figure. Given the strength of the cattle and beef markets, as well as relatively firm pork values, cash hog prices look undervalued.
Technical analysis: Today’s February futures breakdown puts hog market bears back in the technical saddle. Tentative support seemingly emerged at today’s close of $65.325, with backing from the psychological $65.00 level and the daily low of $64.675. A drop below the latter point would have bears targeting $60.00. Today’s plunge likely made recent lows, the Nov. 28 low of $65.80 and the Dec. 13 low of $66.225 initial levels of technical resistance, with backing from last Friday’s low at $67.65 and from today’s high at $68.95.
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 January.
Price action: February live cattle futures surged $3.425 to $171.925, ending the day nearer session highs. March feeder cattle futures leapt $3.35 to $226.45, while nearby January futures jumped $3.125 to $225.425.
Fundamental analysis: Live cattle futures surged to start the year, charging above technical resistance that capped gains over the last two weeks. While futures traded sideways, the cash cattle market quietly marked its second consecutive week of gains despite negotiations pushing into the later half of last week, with last week’s cash average rising to $172.24, up $1.73 from the prior week. Prices were also likely supported by anticipation of dressed weights falling, as weights are likely to fall as slaughter counts increase following the recent holiday-shortened work weeks.
Futures shrugged off a weaker wholesale market this morning that saw Choice cutout falling $4.99 from Friday to $284.72. If sustained through afternoon trading, that would mark the lowest Choice quote since March 2023. Meanwhile, Select cutout gained 7 cents to $260.40, bringing the Choice/Select spread to $24.32.
The corn market underwent heavy selling pressure throughout the session, in part due to a soaring U.S. dollar index. That weakness helped support feeder cattle futures, though feeders struggled against overhead technical resistance and remain in a sideways technical pattern.
Technical analysis: February live cattle futures soared despite weakness seen in most outside markets to start the new year. Bulls gained further control of the technical advantage and are seeking to close prices above initial resistance at $172.65, the 40-day moving average, which capped gains today. Further resistance stands at $173.475 then the psychological $175.00 mark. Bulls are seeking to hold support at $170.50 on profit taking, which has backing from the 10-day moving average at $169.475.
Despite feeders leading the way higher in December, fats led the way higher today. Marcher feeder futures remained in the recent sideways pattern as gains were limited by initial resistance at $226.975. Bulls are seeking a daily close above that mark before tackling additional resistance at $229.30, then $233.50.
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 January.
