Livestock Analysis | November 2, 2021
Price action: December futures tumbled $1.90 to $74.25, the lowest closing price since $71.975 on Oct. 27, while February hogs fell $1.65 to $77.15.
Fundamental analysis: Hog futures extended yesterday’s weakness on poor technical and lackluster cash fundamentals. Despite the industry’s tendency for diminished hog slaughter and pork supplies between mid-October and Thanksgiving, illustrated by a 1.8% decline in last week’s hog slaughter, cash and wholesale markets are generally feeling downward pressure. Pork cutout values rose 23 early today to $90.79 but remain near eight-month lows. The preliminary CME lean hog index declined 55 cents to $78.61, the lowest since late February.
Last week’s late futures rally that reduced the discount built into the December contract probably rendered the futures market vulnerable to selling today. That is, the difference between the December contract and the index had recently averaged around $10, but even after today’s losses, the latest difference is at $4.26. Short-term prospects look bearish, but bulls can reasonably hope for support spilling over from rebounding beef values, as well as seasonal strength in the ham market.
Technical analysis: December hogs couldn’t mount a serious challenge of technical resistance associated with the contract’s 40-day moving average (around $77.40) following last week’s late surge, which has seemingly given bears the short-term technical advantage. They proved unable to force a close below initial support at the contract’s 10-day moving average around $74.34, but a follow-through decline would have them targeting last Thursday’s low at $71.80. Additional support extends from the September low of $71.275. Bulls are likely hoping for a push above the 40-day moving average and a follow-through challenge of the $80.00 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 rose $1.10 to $129.95 and nearer the session high. November feeder cattle rose $3.175 to $157.575.
Fundamental analysis: Feeder futures led live cattle higher, spurred by weakness in corn futures. If the corn market resumes its rally, upside in feeders will likely be limited. Ideas the cash cattle market has bottomed out and will trend seasonally higher into the end of the year also supported buying interest in futures. Choice beef cutout values rose $1.54 early today to $289.12, with Select grade up $1.97. Movement was light at 48 loads. Cash cattle trade has not been established so far this week, but we expected steady-firmer prices compared with last week. Live steers in top feedlot areas averaged $126.29 last week, up from $124.39 from the previous week and the fourth consecutive weekly gain.
The S&P 500 index and other U.S. equity benchmarks rose to record highs today, suggesting expanding optimism over corporate earnings and the broader path of the economy heading into the holidays. Strong stock markets and consumer confidence should bode well for higher-priced foods, such as steaks and chops.
Technical analysis: Trading has been choppy and sideways in live cattle futures. The bulls and bears are on a level overall near-term technical playing field. Live cattle bulls' next upside price objective is to close December futures above solid resistance at $133.00. The next downside objective for the bears is closing prices below solid support at $127.00. First resistance is seen at $130.60 and then at the October high of $131.925. First support is seen at this week’s low of $128.725 and then at $128.25.
Feeder cattle bears still have the slight overall near-term technical advantage, with prices trending down for three weeks. The next upside price objective for the feeder bulls is to close November futures above technical resistance at the October high of $162.475. The next downside objective for the bears is to close prices below solid support at the September low of $152.00. First resistance is seen at $158.35 and then at $160.00. First support is seen at $155.00 and then at $154.00.
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.
