Livestock Analysis | February 26, 2024
Price action: April lean hog futures dropped 92.5 cents to $86.275, settling near mid-range.
Fundamental analysis: Nearby lean hogs fell under technical selling pressure, though losses continue to be limited by persistent strength in cash fundamentals. After big gains in the CME lean hog index last week, recent gains have been more limited, as the index is up 32 cents to $79.10 today (as of Feb. 22). The preliminary calculation puts the index up another 36 cents tomorrow to $79.46, the highest quote since Oct. 19 of last year. April lean hogs continue to trade at a hefty premium to the index, though our belief that grocers will actively feature hams for Easter, unlike last year, justifies that premium. Stiff technical resistance continues to limit gains in April futures, which have attempted and failed to break above the upward sloping trendline that capped the downside in January, though narrowing premiums to the cash index and robust consumer demand are likely to continue to limit the downside. Wholesale pork prices continue to show impressive strength as a $18.99 jump in bellies led cutout $2.32 higher at midsession more than erased Friday’s drawdown.
Technical analysis: April lean hogs showed relative weakness today despite strength in deferred contracts. Bulls continue to hold the technical advantage. Bulls are seeking to overcome initial resistance at $87.20 before tackling stiffer resistance at $88.00. A close above that mark targets the uptrend line that captured the downside in January but has acted as stiff resistance since the mid-February bounce at $88.60 cents. Meanwhile, bulls are seeking to hold support at $85.975, backed by the 10-day moving average at $85.305. Further selling targets firm support at $84.90.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs covered in the cash market through February.
Price action: April live cattle rose 20 cents to $188.10, nearer the session high and closed at a four-month-high close. May feeder cattle fell 50 cents to $261.575, nearer the session high and hit a 4.5-month high early on.
Fundamental analysis: The cattle futures markets remain on solid fundamental and technical footing, suggesting still more price advances in the near term. Last week’s cash cattle trading averaged $182.95, up $2.60. While packers are trying to control supplies and improve margins, we still look for cash cattle prices to be firmer again when cash trade commences later this week. Tightening supplies and continued strength in wholesale beef prices are likely to justify higher prices.
Today’s noon report showed wholesale beef cutout value rose, with Choice-grade up $1.45 to $302.06, while Select-grade gained $1.81 to $288.12, taking the Choice/Select spread to $13.94. Movement at midday was light at 48 loads.
USDA’s cattle-on-feed report Friday afternoon had just a slightly bearish lean, showing the Feb. 1 feedlot inventory up 0.4% from a year ago, while placements fell 7.4% and marketings were down 0.1%. Due to technical issues, USDA delayed the Cold Storage Report until this afternoon.
Technical analysis: The live and feeder cattle futures bulls have the firm overall near-term technical advantage. The markets are in 2.5-month-old price uptrends on the daily bar charts. The next upside price objective for the live cattle bulls is to close April futures above solid resistance at $192.50. The next downside technical objective for the bears is closing prices below solid technical support at $182.00. First resistance is seen at the February high of $189.20 and then at $190.275. First support is seen at today’s low of $186.05 and then at $185.00. The next upside price objective for the feeder bulls is to close May futures prices above technical resistance at $270.00. The next downside price objective for the bears is to close prices below solid technical support at $255.00. First resistance is seen at today’s high of $263.10 and then at $264.00. First support is seen at today’s low of $258.825 and then at $257.00.
What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs covered in the cash market through February.
