Livestock Analysis | December 1, 2021
Advice: We advise livestock producers to cover all soybean meal needs in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
Price action: February lean hogs rose 15 cents to $80.125, up from yesterday’s drop near a two-week low. Most deferred contracts ended slightly lower.
Fundamental analysis: Hog futures fell on followthrough technical pressure from yesterday’s drop and continued weak cash fundamentals. The latest CME Lean Hog Index fell 56 cents to $70.04, the lowest reading since early February and over $3.00 under December futures, which settled today at $73.625.
Pork cutout values early today fell $1.18 to an average of $85.52, with movement by midday nearly 161 loads. Today’s early movement, combined with the 775 loads moved the first two days this week, suggests retail demand may be picking up at lower prices. Slaughter so far this week was an estimated 1.443 million head, up 17,000 from the same period during last week’s holiday-shortened schedule.
Technical analysis: Lean hog bulls and bears are on a level near-term playing field, with a four-week uptrend on the daily bar chart negated. The next upside objective for the bulls is to close February futures above solid resistance at the November high of $84.675. The next downside objective for bears is closing February below solid support at $77.00.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: NEW ADVICE -- Cover all soybean meal needs in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
Advice: We advise livestock producers to cover all soybean meal needs in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
Price action: December futures rose 12.5 cents to $136.00 per hundredweight, while February gained 70 cents to $138.60. January feeder cattle rose 97.5 cents to $165.825.
Fundamental analysis: Cattle futures bounced from yesterday’s declines but struggled to maintain early strength. Light cash trading was reported early this week, with live steers down slightly from last week’s 4 1/2-year high weekly average. However, Choice cutout values fell 60 cents early today to $271.08, extending the market’s slide to four-month lows and potentially signaling another leg down in the wholesale market. Despite the wholesale market’s weakness, gains in live cattle futures today suggests solid underlying strength.
We believe this reflects a much tighter supply of market-ready fed cattle, especially if packers continue their practice of recent years in which they have boosted some weekly December slaughter totals to annual highs. Moreover, given the huge profits packers are earning even though their margins have diminished signals an increased willingness to pay up for needed fed cattle. We tend to expect more short-term sideways-to-lower price action, due in part to packers’ fresh access to fed cattle contracted for December delivery, but we remain optimistic about the winter-spring outlook.
Recent fed cattle gains at both the cash and futures levels have surely encouraged feedlot operators to become more aggressive in buying replacement yearlings. We believe that optimism helped power today’s feeder gains despite concurrent strength in corn and soybean meal futures (implying increased feed costs).
Technical analysis: After having bounced strongly from its 20-day moving average (now at $137.65), February live cattle continued rising today. And while bulls could sustain only a portion of the early gains, they did manage to close the contract above its 10-day moving average at $139.775 as well. Today’s high at $139.75 likely marks initial resistance, with considerable backing from Monday’s contract high at $141.85. The above-mentioned short-term moving averages will probably act as support, with the 40-day moving average at $136.23 providing major support. A drop below that level would have bears targeting the November 1 low at $133.775.
January feeders also bounced from strong support at their 10-day moving average of $163.78 yesterday but mount a challenge of tough resistance at Monday’s high of $168.30. A close above that level would have bulls targeting the contract high at $172.00. Look for additional support at the November 9 high at $160.60, then at the 40-day moving average of $160.42.
What to do: Get current with feed advice. Short-term protective hedges may be needed if this week’s lows are violated.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE -- Cover all soybean meal needs in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
