Livestock Analysis | December 28, 2021
Price action: Lean hog futures ended mixed, with the February contract down $1.025 to $82.625. Deferred futures posted modest gains.
Fundamental analysis: Nearby lean hogs remained under pressure, despite sizeable year-to-year supply reductions, forecasts for more of the same into summer and rebounding cash and wholesale prices. The market lost momentum in the wake of last week’s early surge and the bullish response to the USDA Hogs and Pigs report. Given the looming end of the quarter and calendar year, widespread profit-taking is no surprise. February futures hold a premium of over $10.00 to the CME lean hog Index, which is expected to be up 66 cents to $71.82 tomorrow.
Still, prospects for the usual early-winter rally seem promising, especially with wholesale prices firming. Pork cutouts in the Omaha market surged $3.14 early today to $87.72, with hams and bellies leading across-the-board gains. Mid-December slaughter fell over 6.0% short of the comparable year-ago figure, reinforcing USDA forecasts for a commensurate drop in winter hog supplies. Concerns about reduced export demand, as well as excessively expensive retail prices, are keeping the market from moving significantly higher, but we view these worries as being overdone.
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 futures rose 12.5 cents to $139.40 after earlier falling as low as $138.45. The December live cattle contract, which expires Dec. 31, rose $1.175 to $138.475. March feeder cattle rose $1.95 to $165.225.
Fundamental analysis: Live cattle rebounded from earlier weakness to post modest gains in light post-holiday trade. While an eroding cash market is limiting buying interest in futures, recent strength in wholesale beef prices suggests retailers are stepping up purchases for January promotions. Choice cutout values rose $2.01 early today to an average of $266.49, the highest since Dec. 7, while Select values rose $2.55 to $257.73. Movement by midday totaled 65 loads.
The cash cattle market has yet to establish a firm tone so far this week, but slaughter is down slightly, at an estimated 238,000 head through today. Live steers last week averaged $135.64, down $1.55 from the previous week and the third consecutive weekly decline. Feeder cattle were supported by weaker corn futures.
Technical analysis: Bulls still hold a near-term technical advantage in live cattle with prices above most major moving averages. Upside price objectives for market bulls include closing February futures above solid resistance at the November high of $141.85. Other upside chart levels to watch include a three-week high reached yesterday at $140.325. Support levels include the 20-day and 50-day moving averages around $138.20 and $137.25, respectively.
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.
