Livestock Analysis | February 28, 2024
Advice: We advise extending all corn-for-feed and soymeal coverage another month in the cash market through March.
Price action: April lean hog futures rose 10 cents to $86.00, despite trading as high as $87.20 this morning. Prices settled nearer session lows.
Fundamental analysis: Lean hog futures gapped higher on today’s opening, but struggled to maintain gains as the session went on as traders were dismayed by perceived weakness in the cash market. After surging $1.00 higher for consecutive days last week, the CME lean hog index has shown weaker gains so far this week, with the index rising 32 cents today to $79.78 (as of Feb. 26). The preliminary calculation puts the index up just 13 cents tomorrow to $79.91, the smallest gain since Feb. 9 when the index resumed its seasonal uptrend from a brief pullback in early February. The premium that April hogs hold to the cash index has narrowed in the past week as futures have seen profit-taking, which underpinned gains this morning. News that the index strength is waning seemingly discouraged traders, enticing them to take a more conservative stance on the cash outlook.
We continue to believe that grocers will actively feature pork, namely hams, into Easter, contrary to last year, which will continue to provide strength in the wholesale pork market. Cutout values fell $1.28 at midsession to $90.59, led by weakness in bellies, though all cuts except butts and picnics saw losses. Movement totaled an impressive 184.7 loads, indicating packers are taking advantage of higher cutout values to move inventory.
Technical analysis: April futures gapped higher before ending the day nearer session lows, though still closed higher on the day. Despite the pullback from recent highs, bulls continue to hold full control of the technical advantage. Initial resistance stands at $86.775, with backing at $87.20, which marks today’s high as well as the recent for-the-move high close. Additional resistance lies at $88.90. Meanwhile, bulls are seeking to hold support at $85.50, with backing from psychological support at $85.00. That is backed by $84.525, which acted as firm support following the Feb. 14 breakout above that mark.
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 all corn-for-feed and soymeal coverage another month in the cash market through March.
Advice: We advise extending all corn-for-feed and soymeal coverage another month in the cash market through March.
Price action: The February live cattle contract, which expires at noon tomorrow (2/29) slid 95 cents to $184.65 Wednesday, while most-active April fell $1.60 to $186.125. March feeders led that market lower, diving $3.40 to $249.60.
Fundamental analysis: The cattle outlook still looks promising, especially after Monday’s monthly USDA Cold Storage report indicated domestic stockpiles had declined 4.9 million pounds last month, whereas the five-year average implied a rise of 2.9 million pounds during January. One might argue that a sizeable beef production drop last month caused the reduction, but we regard the 1.9% reduction as minimal. Instead, we believe grocers holding the line on retail prices kept consumers buying beef at an active pace. Indeed, we regard potentially surging retail beef prices, if/when grocers start imposing them, as the biggest danger to the 2024 cattle price outlook.
The complex’s underlying strength was exhibited again at noon today, when choice beef cutout values rose 67 cents to $302.41. As pointed out previously, choice beef values had never been above $300 in the first quarter before this year. Just as impressive was the select-cutout surge of $2.50 to $292.90. In fact, select cutout has been above $292.00 only four times in the past; during the 2020 spike, amid the double-top posted in summer 2021 and at last year’s summer high. The choice/select spread dipped back to $9.51 at midsession, but we still attribute the bulk of the current closeness to seasonal forces.
Feeder futures fell sharply Wednesday. We suspect some feeder cattle traders believe the feed markets are close to posting a short-term bottom. That is, corn futures rose again today after rebounding strongly from Monday’s low. Soybean meal futures may also be firming. The sizeable premiums still built into nearby futures (e.g. March ended the day just below the psychologically important $250.00 level, whereas the latest quote for the feeder index is $246.46) may also have handicapped bulls in the yearling market.
Technical analysis: Bulls still hold a strong short-term technical advantage in April live cattle futures, although having bears force a close below the 10-day moving average near $186.90 might hold some negative short-term implications. Look for initial support between today’s low at $185.90 and the 20-day moving average near $185.71. Expect psychological support around $185.00, with a close below that point potentially opening the door to a test of the 40-day moving average near $181.11. The 10-day moving average marks tentative resistance at $186.90, with backing from today’s and yesterday’s highs at $187.70 and $189.15, respectively. A move above the latter level would have bulls targeting $190.00, then $200.00.
Bulls own the short-term technical advantage in April feeder futures as well. Initial resistance between today’s high of $258.80 and Tuesday’s top at $260.65 looks formidable, but a close above the latter point would have bulls targeting $265.00 in short order. Today’s low ($254.40) and close ($255.10) congregated around the contract’s 10-day moving average near $255.46. That area still marks initial support. It’s closely backed by the 20-day moving average near $253.04, but a close below that point would have bears looking to quickly test the psychological $250.00 level.
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 all corn-for-feed and soymeal coverage another month in the cash market through March.
