Livestock Analysis | November 11, 2021
Price action: December lean hog futures fell 32.5 cents to $75.375, after rising as high as $76.275 earlier in the session.
Fundamental analysis: Stronger wholesale pork quotes supported hog futures initially before the market faded late. The hog and pork complex remains vulnerable to seasonal pressure, since demand for most pork cuts is weak at this time of year, while hog supplies and weekly slaughter will likely soon climb toward annual highs in mid-December. Yesterday’s jump in cash cattle prices probably offered spillover support for the hog market, despite continued slippage in country swine values. The preliminary quote for the next CME Lean Hog index fell 78 cents to $77.94, the lowest since February.
The ham market historically gains strength at this time of year, which was reflected in today’s midday pork quotes, as primal ham values leapt $32.25 to $101.72 and boosted pork cutout $6.56 to $95.30. However, the ham market has consistently shown a tendency to give back big morning gains in the afternoon, which in turn has undercut carcass values. Still, December futures continue trading at a discount to the index, potentially limiting downside risk.
Technical analysis: Bearish traders seemingly hold the technical advantage, especially after bulls couldn’t sustain an early push today above resistance at December’s 10- and 20-day moving averages at $75.92 and $75.51, respectively. A close above those levels would have bulls targeting the 40-day moving average at $77.59, then the Oct. 18 high at $79.47. Yesterday’s low at $73.70 represents initial support. A drop below that level would open the door to a test of the fall double bottom in the $71.775 to $71.275 range. Support below that level would probably trigger a test of the $70.00 level.
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 fell 12.5 cents to $131.875 and near mid-range. November feeder cattle rose 67.5 cents to $157.325, nearer the session high.
Fundamental analysis: Live cattle futures continue in a pause mode this week after December futures hit a two-month high Nov. 8. Recent weakness in the wholesale beef market that suggests record retail beef prices are crimping consumer demand are also keeping a lid on gains in live cattle futures. U.S. consumers have several options at the supermarket meat case, so traders may be anticipating substitution demand for other meats such as pork and poultry.
Earlier today, USDA reported Choice grade cutout values down another $1.29 at $284.23, the fifth consecutive daily decline. Movement at midday was 70 loads. However, selling interest in cattle futures is being limited by strength in the cash market. Initial cash cattle prices this week rose $3 to $4 over last week’s levels, with packer demand in some areas stronger than available market-ready supplies. Live steers in five top feedlot areas averaged $131.25 yesterday, compared to last’s week’s average of $129.23. The late-October decline in steer carcass weights, along with the cash cattle market rally, suggest the supply of market-ready animals is declining, a positive factor for the intermediate-term cattle outlook.
Feeder cattle futures posted short-covering gains, but higher corn futures prices this week kept a lid on feeders.
Technical analysis: The live cattle futures bulls have the overall near-term technical advantage. A five-week-old uptrend is in place on the daily bar chart. Live cattle bulls' next upside price objective is to close December futures above solid resistance at $134.00. The next downside objective for the bears is closing prices below solid support at $130.00. First resistance is seen at this week’s high of $132.50 and then at $133.00. First support is seen at this week’s low of $131.30 and then at $130.55.
Feeder cattle futures bears have the slight overall near-term technical advantage. Prices have been trending down for four weeks. The next upside price objective for the feeder bulls is to close November futures above resistance at the October high of $162.475. The next downside price objective for the bears is to close prices below solid support at the September low of $152.00. First resistance is seen at $159.00 and then at $160.00. First support is seen at this week’s low of $156.325 and then at $155.00.
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.
