Livestock Analysis | December 8, 2021

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Hogs

Price action: February lean hog futures slipped 50 cents to $76.05, the lowest closing price since $74.325 on Oct. 27. December futures fell $1.25 to $70.825.

Fundamental analysis: Hog futures extended this week’s sharp slide amid weak cash fundamentals and concern over pork demand in 2022. But downward momentum seemed to dissipate, possibly reflecting ideas seasonal and cyclical reductions in hog and pork supplies over the next few months will support prices. Hog supplies typically peak in mid-December, then begin a seasonal decline into early summer. That drop seems likely to be greatly exaggerated this year if the USDA is correct in indicating winter-spring hog numbers could average about 6.0% under year-ago levels. Robust export demand may also support the market.

The industry’s biggest concern is likely the extreme increases seen in retail beef and pork prices this year, as exemplified by the approximately 25% annual increases reported for October. Much depends upon how quickly grocers pass the sizeable wholesale price reductions experienced this fall on to consumers. We are cautiously optimistic on that score.

Tomorrow’s CME lean hog index is expected to decline 11 cents, to $70.83. But the index posted gains in four of the past five days, suggesting the market may be near a bottom. Also, pork cutout values rose $5.82 early today to $86.91, led by gains of over $14 in hams and nearly $12 in bellies.

Technical analysis: Bears have held a clear technical advantage over the past few days, but their ability to sustain only a small portion of early losses today suggests the situation may be shifting in favor of the bulls. Also, the market may be forming a head-and-shoulders bottom on the February chart, with today’s low at $75.35 forming the right shoulder of the formation. That represents initial resistance with backing at the left shoulder (September low) at $74.625 and from the late October low (the head) at $74.05. Tuesday’s low at $76.125 likely marks initial resistance and Monday’s low at $78.175 marks additional resistance. Major resistance persists at the 40-day moving average near $79.78.

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.

 

Cattle

Price action: February live cattle futures fell 55 cents to $138.675, while December futures fell 67.5 cents to $137.55. January feeder cattle fell $1.625 to $163.40.

Fundamental analysis: Weakness in wholesale beef prices and indications the cash market’s upward momentum is waning weighed on cattle futures. Live steers are expected to hold steady with last week’s levels around $140, with packers likely tempering their aggressive bidding seen the past month. Still, nearby December and February contracts have moved to significant discounts to cash over the past few days, seemingly reflecting concerns over winter consumer demand for beef, since cattle slaughter typically declines from late fall-early winter levels to annual lows in the February-March period.

Export demand apparently remains robust and might even improve in the coming weeks as Chinese buyers build supplies for Chinese New Year celebrations surrounding the Feb. 1 turn of their calendar. Traders may be worried grocers won’t be quick to lower retail prices faced by consumers, despite the fact that wholesale beef prices have been declining for weeks. Indeed, the slow retail price reaction was probably a major factor in the bear market suffered by cattle prices between summer 2015 and October 2016 (following the soaring bull market seen in 2014 and early 2015). The ongoing cyclical reduction in the U.S. cattle population seems likely to keep prices working higher over the next few years.

Technical analysis: The technical situation in February cattle futures seems well-balanced, with prices remaining above trendline support near $138.50 and/or $137.20. We see additional support emerging around the Nov. 22 low of $137.85 and at the 40-day moving average near $136.85. A close below that level would have bears targeting the $134.00 area. Resistance around the Nov. 23 high at $139.65 looks solid, with psychological resistance at $140.00 backing it up. A push above that point would have bulls targeting the contract high at $141.85.

What to do: Get current with feed advice. Short-term protective hedges may be needed if this week’s 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.

 

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