Livestock Analysis | March 7, 2024
Price action: Nearby April hog futures slipped 47.5 cents to $84.525 Thursday, while the deferred contracts posted modest gains.
Fundamental analysis: Hog traders apparently expect the hog and pork complex to turn sideways to lower over the next few weeks, as signified by the dwindling April futures premium over the CME lean hog index. That is, nearby futures have set back significantly from last Friday’s high, while the hog index has continued working its way higher. This morning the exchange confirmed Tuesday’s preliminary index quote at $81.31, up 44 cents from Monday. Wednesday’s calculation put the cash equivalent price another 17 cents higher at $81.48. Today’s close left the April future at a premium of just $3.05 with another five weeks to go before its expiration on April 12.
The reduced futures premium suggests the cash market is set to stall and possibly set back in the short term. We are somewhat more optimistic, due largely to ideas demand will remain robust. We suspect bears are anticipating a sizeable drop in ham values, possibly starting late next week, as grocers complete their ham purchases for Easter dinner entrees. We think grocers will feature hams aggressively and the holiday clearance will be strong, which might easily mitigate potential seasonal weakness. Given relatively low domestic ham stocks at the end of January, we think the pork packing/processing/marketing industry will quickly look to build ham stocks for the year-end holiday season. If so, potential early-spring ham/hog weakness may prove minimal. Having pork cutout still trading firmly above the $90.00 level also looks quite supportive.
Technical analysis: Bulls still hold the short-term technical advantage in April hog futures, but today’s close below the contract’s 20-day moving average near $84.93 flipped that level from support to initial resistance. That’s backed by the 10-day moving average near $86.12, with a push above that point opening the door to a test of last Friday’s high at $88.25. Look for initial support at today’s low of $84.375, then at yesterday’s bottom at $83.875. Pivotal 40-day moving average support is now near $82.95. A drop below that point would have bears targeting the psychological $80.00 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 soymeal needs covered in the cash market through March.
Price action: April live cattle rose $1.475 to $188.725 and near the session high. May feeder cattle gained 67 1/2 cents to $258.45 and near the session high.
Fundamental analysis: Some chart-based speculator buying was featured in the cattle futures markets today. Traders are awaiting this week’s cash cattle trading action, which as of this writing had not occurred in earnest. There was minimal cash trade through Wednesday. There were 903 head that changed hands at $182.13 in Nebraska Wednesday, but 370 sold in Iowa-southern Minnesota for $184.00, with the weighted average price coming in at $182.67.
Friendly for the cattle futures markets today was estimated slaughter that averaged less than 121,000 head per day through the first three days this week and totaling 362,000 head. That’s down 100,000 head from last week and 13,614 head from a year ago. Our cash sources expect this week’s cattle slaughter to decline by around 30,000 head from last year. Packers continue to closely manage inventories amid margins in the red.
The noon report today showed wholesale beef values rose again, with Choice-grade up $1.24 to $306.15, while Select grade rose 63 cents to $295.72. Movement at midday was 51 loads. The Choice-Select spread widened to $10.43.
Cattle traders will closely scrutinize Friday morning’s February U.S. jobs report for clues on the health of the U.S. economy. Recent mostly-upbeat U.S. data does suggest consumers will be better buyers of beef in the coming months.
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 March.
