Livestock Analysis | February 17, 2022
Price action: April lean hog futures surged $2.175 to $107.575, the highest closing price for a nearby contract since prices surpassed $110.00 last August.
Fundamental analysis: Despite the sizeable premiums built into hog futures, fundamentals are encouraging bulls to push the market higher. The next CME Lean Hog Index is expected to rise another 91 cents to $94.25, the highest since early October, while wholesale pork appears poised to extend a month-long rally. Pork cutout values rose $3.65 early today to $110.37, led by a gain of nearly $17 in hams. While the preliminary cutout average often rises in the morning then drops to end the day lower, the wholesale market seems to be justifying considerable optimism over the pork industry outlook.
USDA appears to have been correct by projecting U.S. hog supplies falling 6.0% under year-ago levels this winter. Near-record retail beef prices may drive substitution demand for pork. And while April lean hogs have recently pushed above the closing quote for the 2021 contract ($103.03), the summer contracts are priced at levels comparable to or below mid-2021 prices. It’s possible a seasonal late winter-early spring setback could render the April contract overpriced, but trying to take advantage of that possibility would look premature at this point.
Technical analysis: Bulls continue to hold a strong short-term technical advantage, especially after April futures charged to a contract high of $108.075 and posted a strong close. The continuation chart suggests the contract faces significant resistance around $110.00, with other bands of resistance around $113.00 and $115.00. Look for initial support to emerge around today’s low of $104.825, then at the 10-day moving average near $103.50. A drop below that level would likely have bears targeting the psychologically important $100.00 level.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
Price action: April live cattle fell 15 cents to $146.775, around the middle of today’s range. March feeder cattle fell $1.25 to $166.20.
Fundamental analysis: April live cattle futures fell for the first time in four sessions as the market came under mild corrective pressure and held to narrow ranges as traders waited for cash market news. A recent slump in wholesale beef prices contributed to the softer tone in futures. Cash cattle trading has been quiet so far this week, with reports of $142 trade in Kansas, while feedlots were asking $142 to $143 for showlist supplies in the Southern Plains, up from last week’s $140.48 average live steer price.
Packers have been cutting wholesale beef prices to spur retail demand, though the market showed signs of stabilization today. Choice cutout values rose 70 cents early today to $270.32, up from a five-week low, while Select fell 64 cents to $265.44. Movement by midday totaled 105 loads. Also today, USDA reported net weekly U.S. beef sales of 23,000 MT for 2022, up 18% from the previous week and up 38% from the prior four-week average.
Technical analysis: Live cattle retain a bullish bias, though futures have settled into a sideways pattern since posting contract highs last week. Whether the market can generate enough buying interest for a test of the high will hinge on cash direction and money flow. Upside objectives including closing April futures above solid resistance at $150.00. Downside objectives for bears include closing April futures below support at $143.00. Initial resistance is seen at this week’s high of $147.70, then at the contract high of $148.70. First support is seen at $146.00, then at this week’s low of $145.275.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
