Livestock Analysis | January 24, 2022
Price action: April lean hogs rose 37.5 cents to $95.325, a lifetime-high close for the third straight session.
Fundamental analysis: Lean hog futures rose for the sixth consecutive session as traders shrugged off weakness in outside markets, such as U.S. stocks and crude oil, and focused instead on stronger cash fundamentals. Pork cutout values rose $8.89 early today to $102.18, led by gains of over $22 in bellies and over $14 in hams. The morning cutout figure would be the highest daily average since mid-October, though the market has tended to give up much if not all of its early gains by the time prices settle. The CME lean hog index firmed 72 cents today, to $77.51, the highest since Nov. 10, and will be up another 81 cents tomorrow.
Cash and futures prices may continue to be supported on ideas retailers are looking to restock pork supplies, especially given high beef prices. Additionally, many health experts believe the Omicron Covid strain is past its peak in the U.S., reinforcing ideas packing plants will soon return to normal processing rates. Seasonals suggest cash hog prices will continue rising into mid-February. Hams are likely to lead the advances in the coming weeks, as retailers get ready for Easter ham demand. The 10-year average gain for cash hog prices is about $3.50 from mid-February to mid-April.
Technical analysis: Lean hog futures bulls have the strong overall near-term technical advantage. However, the market is still short-term overbought and due for a normal downside correction soon. Prices are in a 2.5-month-old uptrend on the daily bar chart. The next upside price objective for bulls is to close February futures above solid chart resistance at $98.00. The next downside price objective for bears is closing prices below solid technical support at $88.00. First resistance is seen at today’s contract high of $96.325 and then at $97.00. First support is seen at today’s low of $93.40 and then at $92.50.
What to do: Get current with feed advice. We are targeting a drop to the $385 area (50% retracement of the November-to-January rally) to further extend coverage. You remain hand-to-mouth on corn-for-feed needs. Our target for extending corn coverage would be a drop to the $5.75 area.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soymeal needs covered in the cash market through the end of January. You remain hand-to-mouth on corn-for-feed needs.
Price action: Live and feeder cattle posted sharp losses but finished in the middle to upper ends of today’s ranges. February live cattle dropped $1.60 to $136.325, while the April contract fell $2.025 to $140.075, the lowest close since early November. March feeders declined $2.05 to $161.25.
Fundamental analysis: Fundamental pressure stemmed from last Friday’s USDA Cattle on Feed Report, which showed all three categories on the bearish side of the average pre-report estimates. Additional pressure came from heavy spillover from outside markets as the stock market faced strong selling, the U.S. dollar index firmed and the commodity sector weakened. That created a perfect storm for bears that led to profit-taking and long liquidation in futures. By finishing well off session lows, however, the market showed buyers could return tomorrow if outside market pressure eases.
Last week’s cash cattle price averaged $137.50, up 89 cents from the previous week. Active followthrough selling in cattle futures could lead to weaker cash trade this week. But if cattle futures rebound off today’s closing levels, it would encourage feedlots to seek higher prices for cattle. Wholesale beef market strength may also limit futures’ downside. Choice beef rose another 35 cents early today to $292.76.
Feeder cattle futures were pressured in part by weakness in cash feeder cattle prices at the widely watched Oklahoma City auction. Compared to last week, prices were generally $3 to $6 lower, though demand was reportedly moderate to good.
Technical analysis: Today’s price action laid out some critical near-term technical parameters for April live cattle futures. Today’s gap from $141.35 to $142.025 is key near-term resistance. Filling that gap would signal the downside is exhausted short-term. Today’s low at $139.025 is key near-term support, as a drop below it would confirm a head-and-shoulders formation that would project the contract to the $134.00 area.
What to do: Get current with feed advice. We are targeting a drop to the $385 area (50% retracement of the November-to-January rally) to further extend coverage. You remain hand-to-mouth on corn-for-feed needs. Our target for extending corn coverage would be a drop to the $5.75 area.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soymeal needs covered in the cash market through the end of January. You remain hand-to-mouth on corn-for-feed needs.
