Livestock Analysis | January 13, 2022
Price action: February hog futures fell $1.00 to $77.85, matching a one-month closing low posted Jan. 11.
Fundamental analysis: Hog futures resumed the past week’s downswing in the wake of USDA’s reduced outlook for pork exports. USDA cut its 2021 export estimate 75 million pounds and slashed its 2022 forecast by 405 million pounds, to 7.0 billion pounds, a reduction that essentially represents about 80% of a full week of summer production. However, we’re skeptical over the reduction’s size, given the comparatively poor prices USDA and futures markets project compared to last year’s elevated levels.
Bears are also anticipating sustained weakness in cash and wholesale prices. The preliminary figure for the next CME index quote fell 46 cents to $74.60, the second decline in a row. Pork cutout values surged $15.05 early today to $99.51, but traders clearly expect that big gain to be greatly reduced once afternoon quotes are published.
Ultimately, pork strength has been intermittent at best in recent weeks and bears don’t see that changing in the short run. Part of the industry’s problem is costly retail pork. The December retail average for “all other pork” dipped 4.7% from November to $3.494 per pound, but that still represented a 17% annual increase.
Technical analysis: Bears hold a short-term technical advantage, with today’s low at $77.05 marking the February contract’s lowest quote since Dec. 9. Resistance is seen at yesterday’s $77.55 low and at today’s high of $79.35. Look for additional resistance at the contract’s 10- and 40-day moving averages of $80.03 and $80.94, respectively.
Bullish traders are unlikely to look for a larger advance until those resistance levels are overcome. However, bears proved unable to force a close below support extending from the Sept. 23 low at $77.25. That’s likely backed by the Oct. 22 low at of $76.30. A drop below that level would have bears targeting the Dec. 8 low of $75.35, then the Oct. 28 low at $74.05.
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 42.5 cents to $137.00, down slightly from $137.325 at the end of last week. March feeder cattle rose $1.70 to $166.725.
Fundamental analysis: Live cattle rebounded from yesterday’s losses on corrective buying and from extended strength in the boxed beef market, helping overshadow weaker cash prices. Feeder cattle are being supported by weakness in the corn market. Choice cutout values rose $1.88 early today to $281.81, the highest daily average since $282.13 on Nov. 16. Movement by midday totaled 77 loads. Select values rose $1.35 to $272.33. The boxed beef market’s gains likely reflect stepped-up demand from retailers restocking after the holidays.
Conflicting signals from the cash and wholesale beef markets may be confining futures to narrow ranges. Cash prices have slipped in recent weeks and slaughter rates have slowed amid Covid absences at U.S. beef plants, raising uncertainty that may be keeping buyers sidelined. Cash prices appeared headed for the fifth weekly decline in the past six weeks. USDA-reported live steer prices averaged $136.49 so far this week, down nearly $2.00 from last week's average. Slaughter so far this week was an estimated 455,000 head, up 5,000 from the same period last week but down 17,000 head from the same period in 2021.
Early today, USDA reported net U.S. beef sales for the first week of 2022 totaled 9,700 MT, with top buyers including Japan (2,600 MT, including decreases of 300 MT), Mexico (1,400 MT) and South Korea (1,400 MT, including decreases of 500 MT), USDA reported.
Technical analysis: Bears have a slight near-term advantage in live cattle with prices in a two-week downtrend, but the market remains above long-term moving averages. Support in February live cattle futures is seen at this week’s low at $136.025 and the 100-day moving average at $136.15. A drop below those levels may have bears targeting the December low at $135.50 and the late-October low at $133.40. Resistance is seen around the 10-day moving average at $137.60, then at the 40-day MA near $138.30. A close above those levels would have bulls looking to challenge the late-December high at $141.425.
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.
