Livestock Analysis | November 17, 2021
Price action: February lean hog futures fell 22.5 cents to $83.15, after earlier reaching a five-week high at $83.475. December futures fell $1.55 to $76.175, while deferred contracts starting with April ended higher.
Fundamental analysis: Hog futures fell in a mild corrective setback from yesterday’s rally to six-week closing highs, though ongoing weakness in cash fundamentals limited futures upside. After tumbling over $6.00 yesterday, pork cutout values fell another $1.85 early today to $85.92, the lowest daily price since early February. Today’s decline was led by a drop of over $10.00 in bellies. Movement by midday was relatively strong at over 201 loads.
Signs of stabilization in the CME lean hog index this week could help hog futures extend the recent upturn, or at least limit price weakness. The next CME lean hog index is expected to fall 5 cents to $76.28, which followed a gain of 16 cents yesterday. The index remains near a nine-month low hit at the end of last week. Hog slaughter so far this week totaled an estimated 1.448 million head, up 1.8% from the same period last week but down 1.4% from the comparable period in 2020, USDA data showed.
Technical analysis: Lean hog bulls have a near-term advantage, with futures in a three-week uptrend on the daily bar chart and yesterday closing February futures above the 100-day moving average for the first time since early October. The next upside price objective for bulls is to close February futures above solid chart resistance at $85.00. The next downside price objective for bears is closing February below solid support at $77.50. First resistance is seen at today’s high of $82.95 and then at $84.00. First support is seen at $81.00 and then at today’s low of $80.725. Other downside levels to watch include the 40-day moving average around $80.90.
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 rose 50 cents to $132.225 and February futures rose 30 cents to $136.40. January feeder cattle declined 35 cents to $158.925.
Fundamental analysis: Light cash trading at around $132.00, steady to slightly firmer compared with last week, seemed to reinforce inflationary commodity ideas in the cattle market. Meanwhile, anticipation of sustained inflationary pressures seemed to lift most ag markets, with cattle following cotton, wheat and soybeans higher. December futures’ close is essentially in line with cash prices around $132, signaling futures are not overpriced.
The rise was surprising viewed in light of the midsession wholesale report, which indicated a $3.52 dive in Choice cutout to $278.61, the lowest quote since late July. Traders may view the recent wholesale decline as seasonal and temporary. But bulls may also be thinking packers have considerable room to keep bidding for cattle given the huge premium wholesale quotes are carrying over cash values.
Feeder futures exhibited remarkable firmness given the modest fed cattle gains and significant advances posted by the corn and soybean meal markets. We suspect that reflected growing industry optimism about the early-2022 outlook for fed cattle and beef prices.
Technical analysis: The technical situation seems balanced between bulls and bears, with December futures bouncing from 10-day moving average support at $131.85 but unable to mount a serious challenge of the recent high at $132.625. A push above that level would have bulls targeting mid-August highs around $134.50, then the contract high at $138.225. The contract seemingly enjoys additional support at its 20- and 40-day moving averages near $130.95 and $129.85, respectively, with a drop below the latter level likely having bears looking to challenge the contract’s October low at $125.00.
The January feeder chart also looks well-balanced, with prices trading recently on both sides of the 10-, 20- and 40-day moving averages, which are confined to the $158.38 to $158.94 range. Last Friday’s low at $156.80 marks initial support, whereas initial resistance extends from the Nov. 9 high at $160.60. Secondary support and resistance are represented by the Nov. 2 low at $152.775 and the Oct. 12 high 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.
