Livestock Analysis | November 10, 2021
Price action: December lean hog futures rose 75 cents to $75.70, after dropping earlier in the session to $73.70, near a two-week low.
Fundamental analysis: Hog futures rose for the first time in four sessions, supported by signs of recovery in wholesale pork, though slumping cash fundamentals continued to burden the market. Cutout values early today rose $1.51 to an average of $94.06, led by a jump of nearly $12 in hams. Movement by midday totaled 195 loads. The cutout average had tumbled nearly 8.0% during the week ended yesterday. The price remains near an eight-month low of $92.44 posted Nov. 1.
The preliminary quote for the next CME lean hog index is down 51 cents to $78.72, near the eight-month low of $78.32 reached Nov. 3. Carcasses on national direct markets early today averaged $58.04, down from $58.66 yesterday. Slaughter so far this week totaled an estimated 1.423 million head, down 1,000 head from the same period last week and down 13,000 head from the comparable period in 2020.
Technical analysis: Hog market bears hold a firm near-term technical advantage, with December trading under most key moving averages. The next downside price objective for bears is closing December futures below solid support at the September low of $71.275. First support is seen at $74.00, then $73.00. The next upside price objective for bulls is to close December above solid resistance at $79.00. First resistance is seen at yesterday’s high of $76.40, then at this week’s high of $77.325.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You should have all corn-for-feed and soybean meal needs covered in the cash market through October.
Price action: December live cattle futures fell 20 cents to $132.00, while January feeder cattle fell $1.25 to $156.65.
Fundamental analysis: Firm cash prices and the prospect of rising feed costs supported live cattle futures, while stronger corn prices pressured feeder cattle. Cash cattle today in some areas surged about $3.00 over last week, following more moderate gains posted in late October. This has inspired a good deal of confidence among many traders, but has others concerned about a pause in the advance, especially with Thanksgiving two weeks away. Still, the fact that a significant number of cattle traded at $130.00 early this week, on par with last week’s late trade, likely provided support for nearby futures. However, cash trading reportedly surged just after the futures session ended, with packers reportedly boosting bids to $132 in the south, likely spark a stronger futures opening tomorrow.
The industry is now dealing with demand concerns, especially with retail beef prices having climbed again during October. Consumers have a large number of options when visiting the meat case, so the industry is probably anticipating substitution demand for other products such as pork, poultry and eggs to grow at the expense of beef. This week’s slippage in wholesale beef values may also reflect these shifting circumstances. Conversely, the late-October drop in steer carcass weights, along with the ongoing cash market rally, suggests the supply of market-ready animals has begun declining. Indeed, it’s just that phenomenon which largely powers the usual seasonal cattle market advance from late fall into early spring. This seemingly bodes well for the intermediate-term outlook.
Technical analysis: The December cattle chart shows bulls still hold the technical advantage, but they have struggled to overcome initial resistance in the $132.00-$132.50 range lately. However, if we are correct in anticipating a big opening surge Thursday, bulls will be looking to challenge resistance around the July 27 high at $134.575. A push above that level would then open the door to a test of the contract high at $138.225 from late August. Initial support remains firm between the contract’s 10- and 20-day moving averages at $130.88 and $130.57, respectively, with considerable backing from the 40-day MA at $129.37. A drop below the latter level would have bears targeting the October 1 low at $125.00.
The technical situation in January feeder cattle futures seems rather well balanced, although today’s drop did carry the contract price below its respective 20- and 40-day moving averages at $158.86 and $158.63. However, it found support at its 10-day moving average near $157.85. A close below that level would have bears targeting fall lows at $153.125, then $150.775. However, if feeders were to follow fed cattle higher tomorrow and again top the intermediate-term moving averages, bulls will likely be targeting Tuesday’s high at $160.60. A move above that point would then have them looking to challenge the October top at $163.125.
What to do: Get current with feed advice. Be prepared to add cattle hedges if the rally stalls.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soybean meal needs covered in the cash market through October.
