Livestock Analysis | April 17, 2024
Price action: June lean hog futures settled 10 cents lower to $102.725, while nearby May futures rose 20 cents to $94.925.
Fundamental analysis: Nearby lean hog futures faced modest selling pressure throughout the session though they remained above this week’s lows. Traders retain some pessimism over the outlook for lean hogs despite continued strength in both the CME lean hog index and wholesale pork prices. The CME lean hog index is up another 25 cents to $90.98 as of April 15 and the preliminary calculation puts the index up another 38 cents to $91.36 tomorrow, which would be the highest quote for the index since last August. That brings the premium that May futures hold to the index to just $3.565, well below the seasonal average gain that occurs from now until mid-May when the May contract is cash settled against the index. Having grocers opting to feature pork has left consumers apt to choose pork in recent months, keeping pork stocks relatively tight and supporting the cash market, something that is likely not going away anytime soon as the grilling season is upon us. Wholesale pork prices rebounded modestly from big losses seen on Tuesday this morning, rising 16 cents to $99.71. Bellies failed to rebound from large losses on Tuesday, falling once again at mid-session, though ribs and hams also saw losses this morning.
Technical analysis: June lean hog futures posted modest losses after trading on both sides of unchanged. Bulls continue to hold the near-term technical advantage though they need to show signs of strength sooner than later. Bulls are seeking to overcome resistance at the 20-day moving average, currently at $103.50, which has capped gains the last two sessions. Further resistance stands at $104.20, then the psychological $105.00 mark. Support continues to stand at the 40-day moving average, currently at $101.90, which has capped losses the past four sessions. Further selling would find added support at $101.075 then the psychological $100.00 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: You should have all corn-for-feed and soymeal needs covered in the cash market another month through April.
Price action: Cattle futures traded mixed Wednesday, with the nearby April and June contracts closing 60 cents and 40 cents lower, at $180.90 and $175.325, respectively, while some deferred contracts edged higher. Expiring April feeder futures rose 7.5 cents to $240.425, whereas the May contract slid 70 cents to $240.275.
Fundamental analysis: There was no fed cattle trading in the five-area direct markets Monday or Tuesday, but the futures market continues anticipating sustained cash weakness. That’s exemplified by the April live cattle contract falling below $181.00 today, whereas last week’s cash average was $183.84, with a bit less than two weeks until contract expiration on April 30. This week’s wholesale action isn’t very supportive either since choice cutout slipped another 23 cents to $297.79 at noon today after diving back below $300.00 yesterday. Select cutout has proven even weaker lately, being stated 74 cents lower at $291.90 at midsession, which has caused the choice-select spread to widen to $5.89 after hovering in the $1.00-$2.00 area last week. We strongly suspect this reflects the belated onset of the traditional seasonal surge in ‘calf-fed’ marketings of animals placed as calves last fall. However, with packers continuing to curb their operational speeds rather drastically, there seems to be little chance of an upward turn in the cash trend until packer margins turn profitable and they accelerate operations once again.
Industry analysts expect Friday’s USDA Cattle on Feed report to state the April 1 U.S. large-lot feedlot population around 11.856 million head, with March feedlot placements and marketings seen coming in down 7.0% and 11.9% below comparable year-ago levels. The huge cut in March marketings reflects the packing industry slowdown and its impact on marketings and fed cattle prices.
Feeder cattle traders continue anticipating cash market weakness as well, with the April and May contracts now trading below $241.00 and the latest quote for the feeder index (which they cash-settle against) officially quoted at $241.36 yesterday afternoon. On the other hand, given the index’s dive from its March 20 high of $251.82, nearby futures are essentially implying stable cash markets over the next six weeks.
Technical analysis: Bears still own the short-term technical advantage in June live cattle futures, but this week’s price action has weakened their hold. That is, the bounce from last Friday’s ‘for the move’ low of $170.25 has pushed the market above solid initial support at the 10-day moving average near $173.90. Indeed, bears couldn’t seriously challenge that level today. Look for a zone of modest support extending down to the psychological $170.00 level, with a close below that point opening the door to a test of last December’s low at $162.775. Today’s high marked initial resistance at $176.10, with backing from the contract’s 20- and 40- day moving averages at $176.87 and $180.26, respectively.
Bears still hold the short-term technical advantage in May feeder futures as well, with initial resistance marked by today’s top at $241.50. A move above that point would have bulls targeting the 20-day moving average near $244.23. Further gains would put the psychologically important $250.00 level in play. Initial support at today’s low of $239.40 is reinforced by the 10-day moving average near $238.71. A close below that point would have reopen the door to a test of last week’s low at $232.625.
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.
