Livestock Analysis | November 18, 2021
Price action: December lean hog futures fell $1.075 to $75.10, while February futures rose 15 cents to $83.30, the fourth gain in the past five days
Fundamental analysis: While the prospect of diminished supplies supported deferred hog futures, anticipation of short-term cash weakness weighed upon nearby December. After seeming to stabilize in the days prior, cash hog prices turned lower again today. That’s implied by the preliminary quote for yesterday’s CME Lean Hog Index, which fell $1.02 to $75.26, the lowest quote for CME’s cash settlement price since early February. Given the swine industry’s history of boosting hog slaughter and pork production to annual highs in early-to-mid-December, the current pessimism seems well justified, although USDA’s implicit prediction of annual slaughter reductions of as much as 6.0% during the December-February period suggests the market could post a fall low this year (rather than the early-winter bottoms between Christmas and New Year’s Day as often seen in recent years).
Traders were probably expecting recent wholesale losses to persist during the days ahead. For example, after rebounding to $94.22 on November 11, pork cutout ended yesterday at $83.30. They apparently placed little confidence in today’s mid-session quote, which soared $11.73 to $95.03 on huge gains in ham and pork belly primal values. The wholesale market has had a habit of giving back all or major portions of midday gains in recent weeks, but we’re not convinced those can be completely disregarded, especially with the ham market approaching the point where holiday buying from grocers traditionally push prices to their annual highs.
Technical analysis: Bears again enjoy a short-term technical advantage after December futures failed at the 40-day moving average near $77.75 earlier this week. The subsequent reversal carried the contract below its 20-day moving average at $75.36 today. Those now represent initial resistance, but a close above the 40-day moving average would likely have bulls targeting the upper end of a Sept. 24 chart gap at $79.75, then the October high at $85.65. However, today’s slide opened the door for a bearish test of support at last week’s low of $73.70, then the fall double-bottom in the $71.275 to $71.80 range.
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: February live cattle rose 85 cents to $137.25, the highest close in 2 1/2 months. January feeder cattle rose $2.45 to $161.375, a four-week high.
Fundamental analysis: Higher cash cattle bids supported buying interest in futures, as meatpackers bid up for supplies to secure inventories. Market-ready fed cattle numbers are tight with feedlots current. Packers are reportedly bidding $133.00 in the south and the north. Reports said feedlots in the south have sold at $133.00, while many in the north are passing. A $134.00 bid was reported in Texas. Dressed beef prices are quoted at $210.00. Live steers in the top five feedlot areas last week averaged $131.47, the highest since June 2017. Choice cutout values early today fell $1.90 to $276.57, the lowest since late July. Select grade was down $1.15 and movement was 86 loads.
Today’s weekly USDA export sales report also showed improvement in U.S. beef exports. Net weekly beef sales totaled 25,500 MT, up 23% from the previous week and up 58% from the four-week average. China was the prominent buyer at 13,800 MT.
USDA’s Cattle on Feed Report tomorrow is expected to show feedlot placements in October rose 2.2% from year-ago, based on a Reuters survey of analysts. The number of cattle on feed as of Nov. 1 is expected to decline about 0.2%. We think the supply of market-ready cattle will continue to tighten in the coming weeks, which suggests cattle prices could post a strong seasonal rise into spring. Cattle slaughter typically declines during that period.
Technical analysis: Live cattle futures bulls have the overall near-term technical advantage with a seven-week uptrend is in place on the daily bar chart. Bulls' next upside price objective is to close February futures above solid resistance at $139.00. The next downside objective for bears is closing prices below solid support at $135.00. First resistance is seen at the November high of $137.675, then at $138.00. First support is seen at today’s low of $136.575, then at last week’s low of $135.40.
Feeder bulls have gained a slight, overall near-term advantage. The next upside price objective is to close January futures above resistance at the October high of $163.125. The next downside objective for the bears is to close prices below solid support at the October low of $153.125. First resistance is seen at today’s high of $161.85, then at $163.125. First support is seen at $160.00, then at today’s low of $158.65.
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.
