Livestock Analysis | January 4, 2021
Price action: February lean hogs fell 97.5 cents to $80.15, the lowest closing price since Dec. 20. Deferred contracts ended slightly higher.
Fundamental analysis: Expectations for large slaughter this week appeared to pressure February futures, as meatpackers typically ramp up operations after the year-end holidays. Traders may suspect a supply backlog will undercut the market, or at least slow an anticipated price advance through early winter. Recent weakness in wholesale pork also weighed on the market, though pork cutout values early today rose $1.26 to an average of $87.28. The latest CME lean hog index rose 10 cents to $71.85. The index has mostly held a range of $71.00 to $73.00 for the past month, but February futures’ unusually large premium to index is likely muting buying interest in futures.
The rapid spread of the Omicron coronavirus variant holds potential to cause packing plant shutdowns to prevent disease spread among their workers. We doubt we’ll see shutdowns, but it can’t be ruled out.
Technical analysis: Today’s breakdown shifted the technical advantage to bears, since it carried the February futures below the 40-day moving average near $81.05. The 40-day moving average is now acting as initial resistance, with backing from the 10-day moving average just above today’s high at $82.47. Bulls are likely hoping for a rebound that carries the market above last week’s high of $84.65. Today’s low coincided with psychological support at the $80.00 level, with probable backing from the December 15 low of $78.675. Bears are likely targeting the Dec. 8 low at $75.35.
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 fell $1.10 to $137.825, the contract’s lowest closing price since $137.375 on Dec. 22. March feeder cattle dropped $3.175 to $166.35, the lowest close since Dec. 28.
Fundamental analysis: Feeder cattle led losses in cattle futures as the corn market rallied back near the 6 1/2-month highs reached last week. Live cattle, lacking direction from a yet-to-establish cash market, extended the technically-driven declines of the past week, ending near two-week lows. While recent strength in wholesale beef prices suggests retailer demand is improving, the lack of substantial cash trade yet this week may be discouraging buying interest in futures.
Choice cutout values continued to strengthen, rising $1.63 early today to an average of $267.66, the highest since Dec. 7, while Select rose 68 cents to $259.58. Movement by midday totaled 58 loads. The weakness in live cattle futures so far this week suggests traders are skeptical cash cattle will carry forward last week’s strength, even with packers back on a full slaughter schedule. Last week’s average live steer price of $139.59 was up $3.95 from the previous week and was the first weekly gain in four. Cattle slaughter the first two days this week was an estimated 224,000 head, down 14,000 from the same period last week, USDA reported.
Technical analysis: February live cattle gapped lower at today’s open, leaving a gap between today’s high at $138.725 and yesterday’s low at $138.875. February fell as low as $137.80, just above support at the 100-day moving average around $136.20 and the December low at $135.50. Pushing below those chart levels may negate an uptrend drawn from the October low. Last week’s high at $141.425 appears to be short-term top. Resistance is seen around the 10-day moving average at $138.975.
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.
