Livestock Analysis | January 11, 2022
Price action: February lean hog futures slid 52.5 cents to $77.85 while deferred contracts posted slight gains.
Fundamental analysis: Seasonal strength is emerging in the cash hog and wholesale pork markets. The CME lean hog index jumped 97 cents today and is expected to rise another 43 cents tomorrow, to $75.13, the highest since mid-November. Pork cutout values gained another 56 cents early today to $84.50, with movement by midday totaling nearly 161 loads.
Traders may be reacting to the slower advances in cash markets lately, but February futures’ chart breakdown over the past three sessions implies the industry is growing less optimistic over the outlook for the next month. February futures were trading over $10 above the lean hog index early this month but ended today about $2.75 over that cash equivalent price (which futures cash-settle against). Weakness reflects industry concerns over the wave of Omicron infections hurting U.S. and/or global demand. It may also reflect worries that packers will have to continue slowing slaughter rates due to worker absenteeism, or in a worst-case scenario, plant shutdowns forced by widespread infections, though we believe these fears are overdone.
Technical analysis: February futures’ breakdown over the past three sessions has given bears the short-term technical advantage. Today’s low at $77.55 marks initial support, with bears likely targeting the Dec. 8 low at $75.35 in the near term, followed by the Oct. 28 low at $74.05. A drop below that level would put the $70 level in bears’ sights. Monday’s high at $79.90 represents psychological resistance in the $80.00 area, with strong backing from the intersection of the 10-, 20- and 40-day moving averages around $81.15. If they can penetrate those levels, bulls would then be targeting last Friday’s high at $83.075.
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: February live cattle futures rose $1.425 to $137.675, the highest close since Jan. 4. March feeder cattle rose $1.00 to $166.35.
Fundamental analysis: Live cattle bounced back from an early decline to near three-week lows and reached the highest levels in nearly a week on support from corrective buying and wholesale market strength that’s sent boxed beef prices to the highest levels since Thanksgiving. Choice cutout values early today rose another $1.76 to $277.80, the highest daily average since Nov. 26, signaling scaled-up demand from retailers restocking following the holidays. Select values rose $1.96 to $268.46. Movement at midday totaled 84 loads.
Early weakness stemmed from expectations for further erosion in the cash market amid uncertainty over how much production may be lost from Covid absences at U.S. beef plants. Two major packers reportedly paid $136 to $137 for cattle today in southern markets and a third packer paid $137 in Nebraska, according to cash sources. Those values are down roughly $1.00 to $2.00 from last week’s USDA-reported live steer average, which fell in four of the past five weeks. Slaughter has climbed slightly from last week’s levels but remains down from a year ago. This week’s kill so far was an estimated 227,000 head, up 3,000 from the same period last week, USDA reported.
Technical analysis: Charts lean neutral to bearish with February futures down from late-December levels but showing signs of finding a floor this week. February live cattle fell as low as $136.25 today before finding support just above the 100-day moving average around $136.15. Resistance is seen around the 10-day moving average at $138.30 and last week’s high at $140.40.
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.
