Livestock Analysis | April 10, 2024
Price action: June lean hog futures plunged $3.025 to $105.55, though it closed off session lows. Expiring April futures rallied $1.15 to $91.75, settling on session highs.
Fundamental analysis: After opening higher this morning, lean hog futures underwent heavy selling pressure, quickly negating overbought conditions in the market. After closing higher for seven consecutive sessions, bears took advantage of contract highs and removed a significant amount of premium from June futures in a key technical reversal. Little catalyst outside from overbought conditions seems to have fueled the selloff today, as cash fundamentals continue to be quite robust. The CME lean hog index is up another 83 cents to $87.88 as of April 8, while the preliminary calculation puts the index up another 90 cents to $88.78 tomorrow. That would mark the largest daily gain since Feb. 20 and the highest quote for the index since August of last year. Accelerating gains in the index have supported nearby April futures, which go off the board at noon on Friday and will be cash settled against the index quote for that date next Tuesday. Meanwhile, June futures actively took out a chunk of premium to the index today. We continue to believe that grocer willingness to feature pork will continue to provide robust support for the hog and pork complex into the summer. Today’s selloff seemingly points to profit-taking rather than a fundamental shift in the marketplace.
Wholesale pork prices continued higher at midsession despite a drop in bellies. Modest gains in most other cuts offset the big drop in bellies, leading overall cutout 17 cents higher to $100.88. If sustained this afternoon, that would mark a fresh for-the-move high for cutout.
Technical analysis: June lean hog futures underwent heavy selling pressure, negating the past three sessions of gains. Bulls still retain control of the near-term technical advantage, though tomorrow’s session is important as a continuation lower would confirm today’s key reversal. Initial resistance stands at $105.725, with backing from $106.625. Bulls are ultimately seeking to overcome Tuesday’s contract high close of $108.575. Despite the heavy selling pressure today, prices closed above the 10-day moving average, which continues to serve up support at $105.35. Further selling targets uptrend line support at $105.40, then the 20-day moving average at $103.75.
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: Live cattle and nearby April feeder futures gave back a big portion of early-week gains, whereas deferred feeders dipped to fresh for-the-move lows. April live cattle dropped $1.625 to $179.075, while most-active June futures tumbled $2.00 to $172.85. Expiring April feeder futures dove $2.425 to $238.275, while the May contract plunged $3.925 to $236.525.
Fundamental analysis: Anticipation of sustained cash market losses sent cattle futures lower again Wednesday, although the live cattle contracts proved able to close above their lows posted last Friday. The drop may have been limited by hoice beef cutout pushing back above the psychologically important $300.00 level Tuesday. On the other hand, it dipped back below that level (at $299.24) at noon today, and the choice-select spread remains extremely narrow at just $1.66. The 10-year average for the second week of April is $10.96. That development, as well as dressed steer weights climbing to 924 pounds/head on the latest weekly report, point to the extreme damage done to the currentness of feedlot marketings by the drastic packer cutbacks through the first quarter. These suggest the cash market will continue declining in the days and weeks ahead. Conversely, the big discounts now built into the spring and summer futures contracts have already incorporated a great deal of cash market bearishness.
Weak grain and soy prices have implicitly reduced the likely cost of feeding calves and yearlings in the coming weeks and months. However, developments in feedlot country, as exemplified by strangulated packer buying and ballooning weights, along with the discounts now built into deferred fed cattle futures, are almost surely reducing feedlot demand for replacements. That’s also reflected by the late dive in the feeder index. For example, it was quoted at $251.27 late last week, but is now stated at $247.67. Deeply discounted feeder futures also imply big followthrough cash market losses.
Technical analysis: Although cattle futures did not drop below last Friday’s lows today, the across-the-board breakdown left bears firmly in control of the short-term technical situation in most-active June live cattle futures. Today’s low marked initial support at $172.175, with backing from last Friday’s bottom at $171.40. Look for psychological support at $170.00. Bulls couldn’t mount a serious challenge to stiff resistance at the contract’s 10-day moving average (near $175.49) yesterday or today, with today’s high placing initial resistance at $175.275. Look for added resistance around last Wednesday’s high of $176.775, then at the 20-day moving average near $179.57 and the psychological $180.00 level.
Today’s drop to an intra-day low of $235.225 marked initial support for May feeder futures at that level. That likely approximated the start of a band of psychological support around the $235.00 level. A close below the latter point would probably open the door to a followthrough test of $230.00. Today’s high essentially confirmed initial resistance near $240.00, with psychological resistance at that level confirmed by this week’s price peaks. Expect added resistance at the contract’s 10-day moving average near $242.18.
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.
