Livestock Analysis | March 2, 2022
Price action: April lean hogs rose 10 cents to $106.30 while most deferred contracts ended lower.
Fundamental analysis: Hog futures ended mixed amid a substantial loss of the upward momentum the market generated earlier this year. Cash fundamentals remains firm, with the next preliminary CME lean hog index rising 18 cents to $99.84, a six-month high. Pork cutout values rose $3.03 early today to $111.22, after dropping the three previous days, though it’s unclear if that gain will be sustained. Recent weakness is not uncommon this time of year. Historically, it’s common for hog and pork prices to reach an intermediate peak in mid-February, then trade sideways-to-lower into early April. Hog slaughter typically declines from early winter highs to annual lows in early summer, though it tends to flatten out in late February and edge up a bit during March. Today also marks Ash Wednesday, so red meat demand will likely diminish over the next six weeks.
Given hog slaughter recently averaging about 4% under year-ago, as well as the USDA’s estimate of the fall 2021 pig crop about 4% under year-ago levels, we anticipate similar reductions through Memorial Day. Meanwhile, spring brings the usual surge in grilling demand for numerous pork cuts. That’s one reason we do not anticipate a great deal of short-term downside price potential, though there’s a reasonable argument the contract is currently somewhat overpriced.
Technical analysis: Bulls hold the short-term technical edge. For the third straight session, April futures found strong support at the 20-day moving average near $104.37. Secondary support persists at the Feb. 14 low of $101.00, with a drop below that level likely to have bears targeting the psychologically important $100 level, then the 40-day moving average at $97.73. Still, bears can note that bulls have not been able to force prices back above the 10-day moving average near $106.77 since dropping below that level on Feb. 24. Additional support stems from the $107.70 high reached on Feb. 10. A close above that level would have bulls targeting the contract high at $112.85.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
Price action: April live cattle fell 42.5 cents to $140.10, a five-week closing low. April feeder cattle rose $3.20 at $163.00.
Fundamental analysis: Live cattle futures extended a recent slide as the Russia/Ukraine war stoked market anxiety, reflected in volatile U.S. stocks. The escalating conflict in Europe, combined with soaring oil prices and inflation at four-decade highs, is stirring concern demand for beef will suffer. Wholesale beef extended a recent slump, with Choice grade cutout values down $1.05 early today to an 11-month low at $255.63, while Select grade was up 58 cents at $252.10. Movement was decent at midday, at 82 loads.
Packers have been hesitant to bid for cash cattle, while feedlots are seeking $144 or higher for this week’s supplies. Some negotiated fed cattle trading was at lower prices this week: $140 to $141 in the south and $225 in the north, on a dressed basis. It appears lower futures action has spooked some feedlots into selling at lower prices, though most are still holding out for higher levels.
Technical analysis: Live cattle bulls are fading fast and have lost their near-term technical advantage. Bulls need to defend the January low of $139.025 in April futures to avoid serious near-term chart damage being inflicted, which would suggest another leg down in prices. Live cattle bulls' next upside price objective is to close April futures prices above solid resistance at $144.00. The next downside technical objective for the bears is closing prices below solid technical support at the January low of $139.025. First resistance is seen at today’s high of $141.725 and then at this week’s high of $142.55. First support is seen at today’s low of $139.75 and then at $139.025.
Feeder cattle futures bears still have the slight overall near-term technical advantage after today’s big price gains. The next upside price objective for the feeder bulls is to close April futures prices above technical resistance at $167.50. The next downside price objective for the bears is to close prices below solid technical support at the November low of $156.15. First resistance is seen at today’s high of $164.20 and then at $165.00. First support is seen at $161.00 and then at this week’s low of $159.35.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
