Livestock Analysis | March 23, 2022
Price action: April lean hog futures surged $2.30 to $102.55, while most-active June leapt $2.90 to $122.975 after posting a contract high at $124.45.
Fundamental analysis: Hog futures surged in anticipation of spring-summer market strength, with surging wholesale also pork fueling upside. Pork carcass cutout values rose $5.10 yesterday and jumped another $3.96 early today, to an average of $110.67, powered by a rally of nearly $24 in bellies. The sharp futures advance contrasted with cash benchmarks, since the official CME lean hog index for Monday dipped 3 cents to $101.77. The preliminary figure for Tuesday fell another 56 cents to $101.21.
The wholesale gains might easily translate into fresh cash strength, although history suggests another week or two of flat-to-lower cash prices. Strength in the hog/pork complex reflects robust seasonal demand for hams as grocers complete their buying for planned Easter features. Conversely, with the grilling season looming, wholesale demand for pork chops, butts (steaks), ribs, and trimmings (sausage) should soon surge. Grocers will also start building their supplies of bacon for spring and summer BLT season. That demand often faces hog supplies rapidly dwindling toward annual lows in late spring and/or early summer, which routinely drives cash hog prices to annual highs around the same time. The forecast 4% annual reduction in spring hog supplies could amplify the usual rally.
Technical analysis: Today’s advance sent the nearby April contract to a renewed premium over the CME index, but it’s well off its February high. Conversely, the June contract is carrying a strong premium to cash, but current circumstances seem to fully justify the implied optimism. June gapped higher this morning, thereby implying stout support in the $120.225 to $121.20 in the chart gap created. The 10-day moving average implies additional support near $119.01, with further support likely at Monday’s low of $116.325.
Bears are likely targeting support at the 40-day moving average of $114.28, then the March 7 low of $109.15. The contract likely faces psychological resistance at $125.00, with the continuation chart suggesting additional resistance at spring 2014 highs around $128.75, then at the summer 2014 peak of $133.60.
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.
Cattle
Price action: June live cattle rose 27.5 cents to $135.975. April live cattle closed steady at $139.425. May feeder cattle rose 37.5 cents to $165.80.
Fundamental analysis: Live and feeder cattle futures struggled in early trading, hitting two-week lows before rebounding to end the session. Still both feeders and fats may struggle tomorrow as cash cattle trade started today around $138.00 in most locations and dipped to $137.00 in Kansas, according to sources. That’s down around $1.50 or so from last week’s average trade of $139.10. Feeder cattle futures will see buying interest limited by still-elevated corn futures prices. Choice cutout values rose $1.39 early today to $261.36, while Select grade rose $1.20. Movement at midday was 58 loads.
Traders await USDA’s monthly Cattle on Feed Report Friday afternoon. The report is expected to show record March 1 inventories—up around 6% from last year’s early-March levels. Marketings are seen up around 4% from March of 2021. Placements are seen up around 1% from last March. Cattle market bulls are hoping tomorrow’s weekly USDA export sales report shows an improvement in U.S. beef export sales over last week’s disappointing numbers.
Technical analysis: Live and feeder cattle futures bulls and bears are on a level near-term technical playing field amid recent choppy trading. Live cattle bulls' next upside objective is closing June futures prices above solid resistance at $140.00. The next downside objective for bears is closing prices below solid support at the March low of $130.975. First resistance is seen at this week’s high of $137.75, then at $139.00. First support is seen at $135.00, then at today’s low of $134.075.
The next upside objective for feeder bulls is to close May futures above resistance at $170.00. The next downside objective for bears is to close prices below solid support at the March low of $159.25. First resistance is seen at this week’s high of $167.35, then at last week’s high of $169.25. First support is seen at $165.00, then at $164.00.
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.
