Livestock Analysis | December 7, 2022
Price action: February lean hogs dipped 27.5 cents to $86.65, the contract’s lowest close since Nov. 30.
Fundamental analysis: Hog futures consolidated following Tuesday’s sharp declines, supported by ideas the seasonal cash market decline is close to ending. February futures ended today $3.71 above the cash index, compared to a discount of 56.5 cents for nearby December, an indication traders expect the cash index will bottom soon and start to strengthen.
The CME lean hog index rose 15 cents to $82.94 (as of Dec. 5). However, Thursday quote is down 16 cents to $82.78. The national direct five-day rolling average cash hog price quote today is $84.38. Pork cutout value at noon today dropped $4.48 to $85.34, led by a drop of $20 in bellies. However, movement at midday was solid at 222.49 loads.
Technical analysis: Hog futures bulls hold a near-term technical advantage but have faded this week. Stiff resistance levels overhead have again turned back the recent rally. The next upside price objective for the hog bulls is to close February futures above solid resistance at the contract high of $93.30. The next downside objective for bears is closing prices below solid support at the November low of $83.725. First resistance is seen at $88.00 and then at $89.00. First support is seen at today’s low of $85.95 and then at $85.00.
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 slipped 7.5 cents to $153.55, the contract’s lowest close since Nov. 15. January feeder futures fell 90 cents to $180.90.
Fundamental analysis: As we suspected, late losses in wholesale beef prices Tuesday proved temporary, since comparatively tight supplies and robust demand might easily exaggerate the usual first-quarter rally in live cattle prices. Thus, it wasn’t surprising to see choice beef cutout values surge $8.38 by midday today, topping $150 to $151.03. Select cutout rose $2.22 to $221.36, which put the choice-select spread back out at a wide $29.67. We view these prices as more reflective of the current situation, but that doesn’t necessarily mean the markets won’t adjust lower by the end of the day.
One major result of the rebound in wholesale beef prices was a sharp reversal of morning losses in the deferred contracts, which suggests the futures market has found its footing and will potentially trade higher. This seems especially true considering the cash market is, so far, giving very little to recent pressure from futures and wholesale markets. Minimal Monday-Tuesday cash trading averaged $155.7, which represented a 52-cent rise from last week’s early mean. Bears’ inability to sustain the downward pressure seems unlikely to persuade feedyard managers to back away from steady-higher asking prices. Nearby futures look significantly underpriced when compared to recent cash quotes.
Firming live cattle futures seemingly did little to boost feeder futures, which remained under pressure from rebounding corn prices and the ongoing spike in soymeal futures.
Technical analysis: Today’s strong rebound from midsession lows greatly reduced the bears’ technical advantage in February live cattle futures. Having the contract again close in close proximity to the trendline drawn across its September and November lows, now near $153.65, emphasized the firmness of initial support at that level. Look for additional support at today’s low of $152.75, then at the November low at $152.275. A drop below the latter would have bears targeting the September low at $149.60. The short-term moving averages (40-, 20- and 10-days) place resistance at $154.76, $154.84 and $155.01, respectively). A breakout above those levels would open the door to a fresh test of the contract high at $157.275.
Today’s action also weakened the bullish technical advantage in January feeders, although the market enjoys support layered from today’s low at $180.75, to the 10-day and 20-day moving averages at $180.30 and $180.10, respectively, to the psychologically important $180.00 level, then to the 40-day moving average at $179.68. Today’s high places initial resistance at $182.25, with backing from yesterday’s high of $183.15, then Monday’s top at $184.20.
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.
