Livestock Analysis | December 6, 2022
Price action: February lean hog futures tumbled $3.60 to $86.925, the contract’s lowest close since Nov. 30. Spring and summer 2023 contracts also fell sharply.
Fundamental analysis: Hog futures plunged, led by a steep drop in the nearby February contract, on technically-driven profit-taking and fund liquidation after some contracts, including June futures, posted contract highs Monday. Hopes have grown in recent days that a seasonal slide in the cash market may be ending soon, but key cash benchmarks remained under pressure. The CME lean hog index fell 8 cents to $82.79 (as of Dec. 2), the lowest since late January, though Wednesday’s quote is expected to rise 15 cents. February futures ended today $4.135 above the cash index, compared to a discount of 51.5 cents for nearby December and an indication traders expect the index will bottom soon and strengthen seasonally.
The wholesale pork market’s recent slump appears to have sparked renewed demand, as pork cutout values surged $5.74 early today to $92.20, the highest in over two weeks, though still a preliminary figure. Bellies and hams led the way higher with gains of over $13 and $11, respectively. Movement by midday was strong at 193 loads.
Technical analysis: Bullish momentum from the past week’s sharp rally evaporated with today’s dramatic declines, resulting in a largely neutral near-term technical posture that may portend sideways trade between Monday’s high and last week’s low. February futures settled under several key moving averages, including the 10-, 20-, 40- and 100-day, which could encourage followthrough selling Wednesday. Initial support comes in at the 50-day moving average around $86.30, with critical support coming in at a six-week low of $83.725 posted Nov. 30. Initial resistance is seen at the 10-day moving average around $87.87
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 plunged $2.20 to $153.625, the contract’s lowest close since Nov. 15. January feeder futures sank $1.975 to $181.80.
Fundamental analysis: Sharp declines in the wholesale beef market fueled selling in cattle futures amid concern over demand. Choice beef cutout values tumbled $6.62 Monday to $243.31, the lowest daily average since March 2021, and fell another 96 earlier today. Select values fell 68 cents early today to $220.43. The Choice-Select spread fell to $21.92, which is the narrowest it’s been since summer, but still quite wide by historical standards. We doubt the supply of market-ready feedlot animals has increased significantly, so the recent decline in wholesale prices appears to largely reflect weaker retail demand. Seasonal factors also account for some weakness, with grocers probably focusing heavily on turkeys and hams the next two to three weeks. Conversely, high prices for those holiday dinner entrees seem likely to cause some substitution demand for other meats.
Feedyard managers are unlikely to sympathize much with packer buyers pleading poverty due to negative margins, since it’s only been a little over a year since fed cattle prices were in the $120s and packers were earning hundreds of dollars on each animal processed. The futures breakdown may persuade some to take lower cash bids this week, but we view both the ongoing wholesale drop and any cash weakness as likely being temporary. Feeder cattle took additional pressure from a rally in soymeal.
Technical analysis: Today’s breakdown shifted the short-term technical advantage to bears, especially with February live cattle future crashing through formerly solid support (now initial resistance) at the 40-day moving average near $153.68. Added resistance is likely at the contract’s 20- and 10-day moving averages near $154.90 and $155.29, respectively. Initial support is marked by the trendline drawn across the contract’s September and November lows, now near $153.57. A close below that point would open the door to a test of the November low at $152.275, then the September low at $149.60.
Bulls still seem to own the short-term technical advantage in January feeder futures, with the contract bouncing strongly from initial support at the 10-day moving average near $180.36. That’s backed by the 20-day moving average at $180.03, as well as psychological support at $180.00. Stouter support persists at the 40-day moving average near $179.57. Today’s high marks initial resistance at $183.15, then at Monday’s high of $184.20. Psychological resistance is likely around $185.00.
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.
