Livestock Analysis | December 29, 2022
Price action: February lean hog futures fell $2.125 to $88.675.
Fundamental analysis: Hog futures fell a second straight day on profit-taking and corrective selling following Tuesday’s sharp surge. Considerable optimism about the early-to-mid-winter outlook is likely justified, but February futures quotes over $90.00 seem rather excessive. That’s especially true after Tuesday’s $2.09 leap in the CME Lean Hog Index, to $80.69, was followed by a preliminary Wednesday figure at $80.74, up just 5 cents from the day before. Thus, today’s futures drop still left the February contract at a premium just under $8.00 with about six weeks of trading until expiration.
Still, a substantial seasonal rally seems likely following USDA Hogs & Pigs report, which implied hog slaughter will consistently run 2% below year-ago levels through winter and spring. Such ideas were confirmed by Wednesday’s weekly report on Iowa-southern Minnesota hogs. The average weight of those marketed last week averaged just 283.2 pounds per head, which marked an annual reduction of 7.6 pounds. Not only does this imply a big reduction in pork production per head, it indicates slaughter rates might easily fall even more than 2% below year-ago levels in the weeks just ahead.
The outlook would be helped by continued strength in wholesale pork, which has slipped since cutout values jumped to a five-week high of $92.06 last Friday. We suspect retail pork prices slipped below year-ago levels this month. If that reduction were to persist through early 2023, that would seemingly bode well for the price outlook as well.
Technical analysis: Bulls still hold the short-term technical advantage in February hog futures despite today’s drop. Initial support at today’s low of $88.50 is backed by the pivotal 40-day moving average near $87.60, with additional backing from the 10-day moving average at $87.37. A close below those levels would have bears targeting the Dec. 21 low at $83.90, then the Dec. 15 low of $81.525. The psychological $90.00 level likely represents initial resistance, with considerable backing from today’s high at $90.50. Look for stiff resistance extending from Tuesday’s high at $91.60 to the Dec. 5 high of $91.90. A breakout above that zone would have bulls targeting $95.00, then $100.00.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs in the cash market through December.
Price action: February live cattle rose $1.05 to $158.85, a lifetime-high close for the contract. January feeder cattle gained 32.5 cents to $183.80 and closed near mid-range.
Fundamental analysis: Cattle futures extended the past week’s rally behind strengthening technicals and expectations tight supplies of market-ready animals will underpin the cash market well into 2023. Strength in U.S. equities and weakness in the U.S. dollar offered outside market support for ag commodities. Packers in northern markets this week raised cash bids from last week, suggesting they need supplies for post-holiday demand. Feedlots appear to be holding out for higher prices, suggesting it could take at least $1 higher cash bids to produce active sales. Choice cutout values early today fell 34 cents to $279.07, still near a 10-month high posted earlier this week, while Select rose $2.30 to $249.58. Movement totaled 71 loads at midday. The Choice-Select spread at midday narrowed to $29.49.
Feeder cattle futures’ gains posted tepid gains in the face of this week’s solid gains in corn prices. And while soymeal futures dipped, the market seemingly holds little downside potential with nearby soybeans now trading over $15.00.
Technical analysis: Live cattle bulls hold a near-term technical advantage. Their next upside price objective is to close February futures above solid resistance at $165.00. The next downside objective for bears is closing prices below solid support at $154.50. First resistance is seen at today’s contract high of $159.175 and then at $160.00. First support is seen at today’s low of $157.675 and then at $157.00.
Feeder cattle bulls have the slight overall near-term technical advantage. The next upside price objective for the feeder bulls is to close January futures prices above technical resistance at $187.00. The next downside price objective for the bears is to close prices below solid technical support at the November low of $176.325. First resistance is seen at the December high of $184.90 and then at $186.00. First support is seen at this week’s low of $182.375 and then at last week’s low of $181.25.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs in the cash market through December.
