Livestock Analysis | January 10, 2022
Price action: February lean hogs closed down $1.275 at $78.375, the lowest settlement since Dec. 9. April futures dropped $2.65 to $84.70.
Fundamental analysis: Hog futures extended last week’s slide amid chart-driven selling and a “risk-off” day in the general marketplace, with U.S. stocks slipping and crude oil and grain markets also under pressure. Signs of strengthening cash fundamentals appeared to be ignored. Pork cutout values rose $4.00 early today to an average of $89.90, as movement by midday totaled 239.56 loads. The latest five-day rolling average cash hog price was quoted at $66.33. The CME lean hog index will be up 97 cents to $74.70 tomorrow, the highest since Nov. 17.
Traders are narrowing the premium February hogs hold to the cash index. With today’s losses, the lead contract finished just $3.675 above where the index will be quoted tomorrow. We still think the 6.0% supply reduction implied by the December Hogs and Pigs Report justifies the premium built into the nearby February contract, which should limit further near-term selling. But traders are known to pay more attention to short-term momentum than relationships to the cash index when it’s not the final days before contract expiration.
Signs of tightening hog supplies may eventually help futures find support, as slaughter rates have lagged year-ago levels. Last week’s hog slaughter at 2.578 million head fell short of the mid-December high of 2.655 million head and was 9.0% short of the comparable year-ago number. Today’s estimated slaughter at 457,000 head was down 1,000 head from last week, but 41,000 head shy of year-ago.
Technical analysis: Bears have the overall near-term technical advantage and have momentum on their side. The next upside objective for bulls is to close February futures above solid resistance at the November high of $84.675. The next downside objective for bears is closing prices below solid support at the December low of $75.35. First resistance is seen at $80.00, then at $81.00. First support is seen at $78.00, then at $77.00.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on price pullbacks to extend coverage.
Price action: Live cattle futures finished sharply lower, with the February contract down $1.075 to $136.25, a three-week closing low, and April down $1.475 to $140.575. Feeder cattle also posted sharp losses, with the March contract down $1.325 to $165.35.
Last week’s average cash price of $138.41 dropped $1.18 from the previous week. Uncertainty about how much production will be lost due to slowed processing because of absenteeism at some beef plants casts a shadow over this week’s cash trade. As a result, traders are expecting generally weaker prices again this week. But they are also anticipating extended cash cattle negotiations this week, with neither feedlots nor packers expected to be in a hurry to asking prices and bids.
Feeder cattle declined despite steady to firmer prices at the closely monitored Oklahoma City feeder cattle auction. January feeder futures are now below the cash the cash index.
Technical analysis: April live cattle hit sell stops on the drop below the 50-day moving average and the uptrend drawn off the October and December lows. Key near-term support is the December swing low at $139.925, which is closely backed by the 100-day moving average around $139.625. The 5-, 10-, 20- and 40-day averages are layered from $141.94 to $143.29 and will be near-term resistance.
What to do: Short-term protective hedges for fed cattle producers may be needed if recent lows are violated.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on price pullbacks to extend coverage.
