Livestock Analysis | November 23, 2021
Price action: December lean hog futures slipped 50 cents to $74.15, while most-active February rose 25 cents to $83.275.
Fundamental analysis: Hog futures traded mixed, with traders seemingly anticipating sustained short-term weakness but a strong recovery in the new year. USDA’s September Hogs and Pigs report implied December-February hog slaughter would run about 6% under year-ago levels. Last week’s total at 2.629 million head fell 3.6% below the comparable year-ago figure, thereby continuing a string of similar reductions. The numbers raise the question of whether slaughter in the months ahead will exceed the large projected declines, which in turn might keep downward pressure upon prices.
Cash hog prices in recent years have hit annual lows between Christmas and New Year’s Day. Surprisingly large production might cause a repeat of that seasonal phenomenon, whereas many in the industry appear to think the fall low will come earlier than normal this year. We tend to include ourselves in that group, thinking recent wholesale pork weakness and firming wholesale beef prices will spur improved pork demand from farther up the market/supply chain.
Pork cutout values fell 34 cents early today to an average of $85.91, near a seven-month low of $84.52 reached last week. The CME lean hog index showed signs of stabilizing, with the next quote expected to rise 29 cents to $73.17, still down 22% since the beginning of October.
Technical analysis: Although December hog futures rebounded yesterday from last Friday’s decline, they slipped lower again today, keeping the technical advantage with the bears. Yesterday’s low at $73.60 represents initial support, with considerable backing at the sloppy double-bottom posted in October ($71.775) and September ($71.20). A drop below those lows would have bears targeting $70.00, then $68.35. The late intersection of the contract’s 10- and 20-day moving averages near $75.45 marks initial resistance, while the 40-day moving average places pivotal resistance at $77.31. A close above that level would have bulls again targeting the top of the huge September 27 chart gap at $81.55.
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 futures rose 45 cents to $139.425, the contract’s highest closing price since $139.60 on Aug. 25. December live cattle rose 97.5 cents to $135.40, the highest settlement for a nearby contract since April 2017. January feeder cattle rose $2.675 to $164.375, the highest close since Sept. 3.
Fundamental analysis: Live cattle futures closed near a three-month high as a strong cash market extended its run to 4 1/2-year highs. Light trading at live steer prices at $136 were reported in the Southern Plains and $137 in Nebraska, $3.00 to $4.00 above last week’s levels. Last week, live steers in five top feedlot regions last week averaged $133.11, up for seventh straight weekly gain and the highest weekly average since June 2017. Feeder cattle futures rose despite strength in the corn market.
Wholesale beef prices appear to have stabilized after a recent drop under $280.00 in Choice cutout values appear to generate greater retail demand. Choice cutout values fell 15 cents early today to an average of $279.10. Movement by midday totaled 69 loads.
Also today, China’s customs authorities said they will accept import applications for Brazilian beef that was granted a sanitary certificate prior to Sept. 4. Brazil suspended exports of beef to China on that date after detecting two cases of atypical bovine spongiform encephalopathy (BSE), but meat that was already at ports continued to be shipped, with most of it unable to clear customs on arrival in China.
Technical analysis: Market bulls have a firm near-term advantage, with prices in a seven-week uptrend on the daily bar chart. Bulls' next upside price objective is to close February futures above solid resistance at the August high of $140.55. The next downside objective for bears is closing February below solid support at $136.00. Resistance levels include $140.00 and the contract high at $140.55. Support is seen at yesterday’s low at $137.85, then at $137.00.
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.
