Livestock Analysis | December 21, 2021
Price action: Lean hog futures posted strong gains, with the February contract up $2.95 to $82.425, the highest settlement since $84.25 on Nov. 24.
Fundamental analysis: Hog futures rebounded from yesterday’s losses and ended near a four-week high. Broad risk-off trading weighed on global markets yesterday, but many commodities snapped back sharply today, including crude oil and grains. Outside markets may continue to influence livestock futures tomorrow, though traders are also looking ahead to USDA’s Hogs and Pigs Report Dec. 23. The report is expected to show the hog herd shrank nearly 3.0% from last year, though it could also signal producers intend to halt the contraction (see “Evening Report” for pre-report expectations).
Fundamentally, the cash hog market continues to strengthen, but February lean hog futures are rising at a more rapid pace. The next CME lean hog index is expected to rise 9 cents to $73.02, the highest since Nov. 22. February hogs finished $9.045 above the next cash index, nearly double the normal seasonal gain in cash prices from now until mid-February, when the contract expires.
Technical analysis: There is an inverted head-and-shoulders formation on the daily February lean hog futures chart, though the neckline is angled and intersects around $83.45. A push above the neckline and the November high at $84.675 would project the contract to a new high. Short-term momentum indicators have turned up, but the contract is far from oversold.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You should have all soybean meal needs covered in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
Price action: February live cattle rose 95 cents to $136.925, while March feeder cattle rose $1.325 to $161.825.
Fundamental analysis: Live cattle futures posted a corrective bounce following two days of losses, supported by broader strength in commodity markets today. Soybean futures rallied to a 3 1/2-month high and crude oil bounced back from sharp losses yesterday, contributing to a more bullish, “risk-on” tone in commodities. Tight supplies of market-ready cattle continued to underpin futures, with USDA’s Cattle on Feed report Dec. 2 potentially providing the next directional cue for the market.
The upside likely will remain limited because of eroding cash prices and soft beef demand. Early-week cash trade was reported around $135, down about $2.00 from last week’s average. Choice cutout values rose 33 cents early today to an average of $262.71 on light movement of 68 loads by midday. Cutout values are still near eight-month lows reached last week, and cash activity is expected to be sluggish the rest of the year, with packers not pursuing animals aggressively and retailers likely waiting until after the holidays to restock inventories.
Technical analysis: Live cattle futures are in a three-week downtrend on the daily bar chart, though February futures’ strength today came close to breaking that trend and the contract rebounded back above the 100-day moving average. Bulls' next upside objective is to close February futures above solid resistance at $139.00. Downside objectives for bears include closing February below solid support at $133.00. Other chart levels in February live cattle include yesterday’s low at $135.50 and the 100-day moving average around $136.05.
What to do: Short-term protective hedges for fed cattle producers may be needed if recent lows are violated.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
