Livestock Analysis | March 14, 2024
Price action: Hog futures traded mixed Thursday, with the nearby contracts edging higher and the summer contracts posting modest losses. Nearby April futures ended the day 15 cents higher at $85.025.
Fundamental analysis: The current hog and pork situation remains supportive of short-term gains. The CME hog index for Tuesday officially rose 41 cents to $82.02 this morning, while the preliminary figure for Wednesday gained another 17 cents to $82.19. Meanwhile, noon pork cutout advanced $1.73 to $93.69, which puts it within easy striking distance of the first-quarter high (from March 1) at $94.45. The rise was doubly impressive since it came despite a dip in pork belly values. Sizeable pork loin and ham gains led the way higher.
The market may also be dealing with an unexpected reduction in hog supplies. Last week’s preliminary slaughter total came up 2.0% short of the comparable year-ago figure, thereby presenting a sharp contrast to January and February numbers that routinely topped those from early 2023. This week’s four-day total fell 17,000 head or about 1% under last week and 39,000 or about 2% under the same week last year. The USDA’s December report implied spring hog supplies about even with comparable year-ago totals, but it’s 14-month habit of underestimating hog numbers has probably had most in the industry expecting a 1%-2% annual increase in spring hog slaughter. Even a modest year-to-year reduction could greatly amplify the usual spring hog and pork rally.
Technical analysis: Bulls still seem to own the short-term technical advantage in April hog futures. The market is trading firmly after having bounced from major support at the 40-day moving average (now near $83.72) Monday and Tuesday. Look for initial support at today’s low of $84.40. A close below the 40-day moving average would have bears targeting the psychological $80.00 level. Today’s high essentially matched initial resistance at the contract’s 10-day moving average near $85.18. That‘s backed by the 20-day moving average near $85.65. A breakout above that point would open the door to a retest of recent highs around $87.10, then the February high of $88.90.
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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.
Price action: April live cattle fell $2.975 to $186.95. May feeder cattle lost $3.775 at $254.825. Prices closed near their daily lows.
Fundamental analysis: Bearish daily “outside market” forces were at work in the cattle futures markets today. The stock market sold off following another warmer-than-expected U.S. inflation report. The producer price index for February rose 0.6%, month-on-month, which was double the rise the marketplace expected. Today’s PPI report followed the warmer-than-expected consumer price index reading on Tuesday. A rally in the U.S. dollar index today was also a negative for the raw commodity sector, including livestock futures.
Also bearish for cattle futures today, final cattle slaughter numbers from two weeks ago showed steer dressed weights rose another 5 pounds to 919 pounds per head. That’s up 10 pounds from the first week of February and 20 pounds over year-ago. This is somewhat due to compensatory gains from the January freeze, and to some extent reflective of the comparatively warm weather seen since then.
Cash cattle trading so far this week has seen light trade around $185.00. Bids of $185.00 were reported in western Kansas, with rumors of $188.00 bids in Nebraska. Our cash sources are still expecting higher cash cattle prices this week. However, the sharp drop in futures markets today could cause some feedlots that have hedged cattle to move them at lower prices than previously expected.
The noon report today showed Choice-grade boxed beef cutout value up $1.05 to $310.87, while Select grade rose 40 cents to $301.44, taking the Choice/Select spread to $9.43. Movement at midday was 54 loads.
USDA this morning reported U.S. beef export sales of 11,200 MT for 2024, which was a marketing-year low. Net sales were down 20% from the previous week and 19% from the four-week average.
Technical analysis: April live cattle futures prices hit a 4.5-month high early on today and then reversed course to score a bearish “outside day” down. The bulls still have the overall near-term technical advantage. A three-month-old price uptrend is in place on the daily bar chart. The next upside price objective for the bulls is to close April futures above solid resistance at $190.275, which is today’s high and also the top of a price gap on the daily chart, filled today and formed last October. The next downside technical objective for the bears is closing prices below solid technical support at $184.475. First resistance is seen at $190.275 and then at $192.00. First support is seen at last week’s low of $186.55 and then at $185.000.
May feeder cattle futures prices also scored a bearish outside day down. The bulls still have the overall near-term technical advantage. However, a three-month-old uptrend on the daily bar chart has stalled out. The next upside price objective for the feeder bulls is to close May futures prices above technical resistance at the February high of $263.125. The next downside price objective for the bears is to close prices below solid technical support at $250.675. First resistance is seen at $258.00 and then at today’s high of $259.876. First support is seen at $254.525 and then at $253.00.
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 should have all corn-for-feed and soymeal needs covered in the cash market another month through April.
