Livestock Analysis | March 26, 2024
Price action: Hog futures continued their recent advance, with nearby April rising 42.5 cents to $85.575, while most-active June slid 32.5 cents to $101.35.
Fundamental analysis: The hog and pork complex continues exhibiting seasonal strength. While last Friday’s quote for the CME hog index did dip 11 cents to $83.48, as expected, the preliminary calculation for Monday’s quote rebounded 21 cents to $83.69. Bears may also have been somewhat encouraged by the midsession dip of 22 cents in pork cutout, now at $95.52, but that still leaves it only slightly below the six-month high posted at Monday’s close.
We see little reason to think the tentative cash advance seen lately won’t accelerate once spring grilling demand arrives and available hog supplies undergo their usual second quarter drop to annual lows. We’ll know more about the latter point after the USDA releases its quarterly Hogs & Pigs report after Thursday’s close. Recent slaughter rates suggest the USDA’s December report was accurate in projecting spring kills about even with year-ago levels, although the department clearly underestimated winter supplies.
Still, all signs point to sustained demand strength as long as grocers hold the line on retail pork prices. That was made particularly evident by Monday’s USDA Cold Storage report. It indicated ending January stocks at 463.3 million pounds were revised almost 5.0 million below the prior estimate, with the February 29 total at 456.5 million marking a 6.8-million-pound monthly decline. That represented a drastic contrast to the seasonal pattern, with the 10-year average implying an approximate 34-million-pound increase during February.
Technical analysis: Today’s late drop in June lean hog futures likely disappointed bullish traders, but it didn’t greatly dent their short-term technical advantage in the wake of Monday’s big surge. Bears couldn’t force a significant move below solid support between the contract’s 10- and 20-day moving averages near $101.28 and $101.25, respectively. Stronger support persists at the psychological $100.00 level and at the 40-day moving average near $99.19. Today’s high marked initial resistance at $102.725, which is stoutly backed by last week’s high of $103.475. A breakout above that point would have bulls targeting the psychological $105.00 level.
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: June live cattle futures dropped $3.225 to $178.375, while nearby April futures tumbled $3.10 to $183.10. May feeder cattle futures fell $5.375 to $247.25, while nearby March futures sank $1.725 to $247.725.
Fundamental analysis: Live cattle futures underwent heavy selling throughout Tuesday’s session, as nearby April futures traded to the lowest mark in a month and a half. Technical selling spurred prices lower, as the uptrend stemming from the December lows has been negated and the recent sideways consolidation pattern has failed. Cash cattle trade has had a slow start to the week, though initial trade took place at $186.00 on Monday, well below last week’s record of $189.56. Still, cash trade so far this week is well above April futures, which could limit the downside, barring further deterioration of the cash market. Demand for wholesale beef continues to prove quite robust, as noted in yesterday’s Cold Storage Report, which showed beef inventories down 28.5 million lbs. to 442.8 million lbs. at the end of February, marking a greater than average decline for the month. That comes on the heels of reduced beef production due to packers managing tight cattle supplies and continued red margins. Wholesale beef prices were mixed at midsession, as Choice cutout rose 37 cents to $311.26 and Select dropped $1.52 to $300.54.
Feeder cattle futures underwent heavy selling today as well. Deferred contracts saw greater losses, with April futures reaching the lowest mark in two months. The late-spring contracts are now trading at a discount to the feeder cattle index as traders maintain more of a pessimistic outlook on the market due to last week’s Cattle on Feed report implying increased supplies of feeder cattle down the road.
Technical analysis: June live cattle futures posted sharp losses the last two sessions, negating the recent sideways trend, with prices now breaking down on the daily bar chart. Significant support levels were lost in the last couple of sessions, leaving bulls facing a steep uphill battle to reclaim the technical advantage. Initial resistance stands at $179.70 with firm backing from the psychological $180.00 mark. Additional buying finds resistance at the 40-day moving average, currently at $181.825, which capped gains this morning. Meanwhile, further selling finds support at $177.50, with backing from today’s low of $176.40, then the psychological $175.00 mark.
May feeder cattle futures saw sharp losses today, marking the lowest close since late January. Prices are breaking down on the daily bar chart. Bulls are seeking to recapture support at the psychological $250.00 mark before tackling additional resistance at $252.625, then $254.20. Meanwhile, support stands at $247.50, today’s lows of $245.425, then the psychological $245.00 mark.
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.
