Livestock Analysis | February 20, 2024
Price action: Fresh cash and wholesale strength boosted hog futures Tuesday. Nearby April rose 45 cents to $85.675.
Fundamental analysis: Renewed cash strength and a big Monday jump in pork cutout likely powered today’s futures advance. The hog index for last Friday was officially published at $75.75 this morning, marking a 46-cent increase. This morning’s USDA report implies Monday’s official index figure (to be officially published tomorrow) will jump $1.05 to $76.80. Moreover, Monday’s closing pork cutout figure leapt $3.21 to $93.78 due to big gains in pork belly and picnic primal values. Those gains almost surely powered today’s early futures advance, whereas the $1.46 midsession drop in pork values, to $92.32, probably played a sizeable role in the subsequent setback.
Hog supplies are apparently trending lower, as one would expect in the wake of the short-processing weeks seen from just before Christmas into mid-January. Last week’s kill at 2.559 million head represented a weekly drop of 63,000, but still marked an annual increase of 70,000 (2.8%). We expect slaughter rates to continue dropping. However, we doubt they will drop to levels matching comparable 2023 numbers, as the December USDA Hogs & Pigs report implied, since USDA analysts have consistently underestimated hog supplies since late 2022. Conversely, we expect robust demand from domestic consumers and export customers to continue supporting the market strongly in the coming days and weeks.
Technical analysis: Bulls still own the short-term technical advantage in April hog futures. Look for strong support at today’s low of $85.425, with close backing between last Wednesday’s (2/14) high at $84.725 and last Friday’s (2/16) low of $84.525. Look for additional backing at the confluence of the contract’s 10- and 20-day moving averages near $82.75. Look for initial resistance at today’s opening quote of $86.225, then at today’s high of $87.10. A breakout above those points would have bulls targeting the $89.00 to $90.00 area.
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 soybean meal needs covered in the cash market through February.
Price action: April live cattle futures fell 22.5 cents to $187.325, though deferred contracts saw slight gains. Nearby February futures fell 37.5 cents to $184.40. March feeder futures rose 35 cents to $251.375, though deferred contracts surged, as the April contract rallied $2.00 to $255.55.
Fundamental analysis: Cattle futures traded on both sides of unchanged, facing volatility alongside most of the general marketplace after the long weekend. Following last week’s late surge higher in futures and contrary weakness in cash cattle prices, which fell 80 cents to $180.35, futures consolidated near Friday’s close. Last week’s cash market slippage is likely to be short-lived as feedlots are unlikely to take weaker bids, which coincides with the general bullish bias seen in futures, as February futures continue to trade well above current cash levels, settling at $184.55 today. Cash cattle trade is likely to be pushed into the latter half of the week, as is the norm for weeks that are capped by the monthly USDA Cattle on Feed Report after Friday’s close. High volumes of cattle changed hands last week, which likely has much of packers short-term slaughter needs met, especially if they continue to run weaker slaughter counts. Negative packer margins and stubborn feedlots are likely to further accentuate the delay in cash trade, leaving room for volatility in futures as the market awaits guidance from the cash market.
Wholesale beef prices were mixed at midsession, as Choice cutout slipped 21 cents to $296.88 and Select cutout surged $2.76 to $290.16. That narrowed the Choice/Select spread to just $6.72. The spread typically bottoms at some point in February or March though the spread is tight historically after accounting for the fact that both choice and select cutout values have never been higher at this point in the year.
Technical analysis: April live cattle futures slipped modestly after trading on both sides of unchanged. Bulls retain full control of the technical advantage; today’s consolidation from last week’s push higher could prove fruitful for bulls as the week goes on. Initial resistance stands at last week’s high of $187.55, which nearly coincides with the all-time high of $187.575 on the continuation chart. Further resistance stands at the $188.00 mark, then $188.50. Meanwhile, support stands at $186.725, $185.60, which coincides with the 10-day moving average at $185.55, then $185.00.
March feeder futures posted modest gains, though deferred contract showed robust gains. Bulls continue to hold full control of the technical advantage, targeting initial resistance at $252.25. Further resistance stands at $252.85, $254.10, then the psychological $255.00 mark. Initial support stands at $250.00, quickly backed by $249.90. Firmer support stands at $247.50, the 10-day moving average, which capped the downside last week, then $247.10.
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 soybean meal needs covered in the cash market through February.
