Livestock Analysis | November 16, 2021

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Hogs

Price action: News that the CME lean hog index is likely to rise tomorrow seemed to encourage hog market bulls Tuesday, with the nearby December contract surging $1.90 to $77.725 per hundredweight.

Fundamental analysis: Hog slaughter continued running well below year-ago levels last week and, if the September Hogs and Pigs report was accurate, could run as much as 6% below year-ago levels later this year and in early 2022. Those implied reductions are adding to recent ideas that hog prices may post an early fourth-quarter low this year. The preliminary reading for the next CME Lean Hog index edged up 16 cents to $76.33. Bears can argue that wholesale pork values are declining once again, pointing in particular to today’s early slippage of 83 cents to $91.13. Pork cutout values have fallen for the past three trading sessions. Conversely, those losses started from $94.22 last Thursday, when it leapt from $88.74, which means pork cutout is still higher than it was a week ago.

The industry probably can’t rely upon the ham market posting strong seasonal gains into mid-December, when grocers will finish their buying for Christmas dinner entrees, but intermittent bursts of ham price strength followed by significant setbacks seem likely. Sustained firmness in wholesale beef values, as seen lately, could provide background support as well. The big question concerning probable price behavior over the next six week is how sharply slaughter rates rise to their anticipated annual high in mid-December. We are guardedly confident on that score.

Technical analysis: Today’s advance seemingly gave bullish traders the short-term advantage, with December futures bouncing from support at its 20-day moving average around $75.26 and smashing through resistance around the 10-day moving average ($76.22) and last Friday’s high at $76.525. However, bulls could not force the price significantly above pivotal resistance at the contract’s 40-day moving average at $77.76, so the balance didn’t swing fully in the bulls’ favor. A close above that level would open the door to a test of the upper end ($79.75) of the huge gap posted by the market on Sept. 24, then the October high at $85.675. By contrast, a short-term failure and follow-through to the downside would have bears targeting last week’s low at $73.70, then the late-October low at $71.775.

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.

 

Cattle

Price action: December live cattle futures fell 5 cents to $131.725, while February futures, now the most-active contract, fell 22.5 cents to $136.10. January feeder cattle climbed 80 cents to $159.275 per hundredweight.

Fundamental analysis: Live cattle futures ended narrowly mixed, extending the sideways trade of the past two weeks amid expectations the cash market’s recent upward momentum will slow after two weeks of aggressive packer buying. Cash cattle have yet to establish a firm direction this week, though limited supplies of market-ready animals portends higher prices in 2022, based upon the February contract’s $4.00-plus premium to December.

Last week, live steers rose $2.24 to an average of $131.47, the sixth consecutive weekly gain and the highest weekly average since early June 2017. Packers bought 119,000 head after buying 97,000 head the previous week. Wholesale beef prices remain under pressure, indicating record retail prices are curtailing demand. Early today, choice cutout values fell 15 cents to an average of $283.05, the lowest since $283.04 on Oct. 25.

USDA’s next Cattle on Feed report Nov. 19 is expected to show feedlot placements in October up 2.2% from the same month in 2020, based on a Reuters survey of analysts. The number of cattle on feed as of Nov. 1 is expected to decline about 0.2%, while October marketings are expected to be down 3.7%.

While the expiring November contract slipped, deferred feeder cattle futures rallied in apparent response to widespread losses posted by the crop markets. Optimism about the 2022 cattle outlook may also have spurred feeder buying.

Technical analysis: Bulls have a near-term technical advantage in live cattle, but a six-week uptrend on the daily bar chart is losing momentum as the market grinds sideways. Upside objectives for bulls includes closing February futures above solid resistance at $138.00, while downside objectives for the bears include a close below solid support at $133.40. Other chart levels to watch in December live cattle include yesterday’s high at $132.625, a 2 1/2-month high, and the 100-day moving average around $131.25.

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.

 

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