Livestock Analysis | November 3, 2021
Price action: December lean hog futures rose $1.70 to $75.95, up from the eight-month closing low of $71.975 reached Oct. 27.
Fundamental analysis: Hog futures posted a firm corrective bounce from yesterday’s losses, helped by strength in the cattle market and a surge in wholesale pork prices. Pork cutout values rose $8.55 early today to $102.76, led by a gain of over $31 in hams, according to a USDA report. The morning cutout quote would be the highest in nearly three weeks, though cutout values have often ended the day lower in recent weeks. Until cutout values establish a bottom, futures may remain under pressure, or at least hold minimal upside potential.
U.S. hog numbers are down from year-ago levels and are expected to remain constrained into next year, which is reflected in July 2022 futures’ nearly $18 premium to December. But sluggish retail demand and heavily bearish market psychology continue to weigh on futures. The latest CME lean hog index fell 12 cents to $79.04, the lowest since Feb. 22. On national direct markets, carcasses fell 19 cents today to $60.69.
Technical analysis: Lean hog bears have an overall near-term advantage, with prices in a four-week-old downtrend on the daily bar chart. But it’s possible December futures may have established a double-bottom on the daily chart at the September and October intraday lows, $71.275 and $71.775, respectively. If those lows hold, futures may see sideways-to-slightly-higher trade in coming days. Upside chart levels to watch include the 40-day moving average around $77.40.
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 jumped $1.70 to $131.65, the highest closing price since $132.20 on Sept. 2. January feeders climbed $2.20 to $159.225.
Fundamental analysis: Live cattle futures surged to a two-month high and feeder futures settled at the highest level in over a week in response to strong cash market gains and sizeable losses in the corn market. On cash markets, live steers jumped about $2.00 from last week’s average to $127.96, based on the average price in five top feedlot areas, a USDA report showed. This week’s cash strength may mark a fresh high for 2021 and the highest cash quote since April 2019. Moreover, packers paying up aggressively early in the week suggests they need cattle and will continue buying actively next week as well.
Rising wholesale prices are likely the main driver of the cash and futures strength. Choice cutout values early today rose $1.32 to $288.70, the highest in a month. History suggests prices will work seasonally higher into spring. We suspect improved demand may be helping boost the market, since retail beef prices remain elevated. We still suspect lower retail quotes will be needed to power a bull market in early 2022. Otherwise, the market can probably only rely on “normal” seasonal strength as slaughter rates and beef production decline into the February-March period.
Technical analysis: December cattle gapped higher in early today and reached a two-month high, but the mid-range close, below last week’s highs, suggests further upside may be limited. Look for initial resistance at the Oct. 27 high of $131.925 and at today’s high at $132.40; a close above the latter would have bulls targeting the early-to-mid-August highs around $135.00, then the late-August contract high at $138.225. Initial support likely spans today’s chart gap between $130.625 and $130.425. The $130.00 level has been pivotal to recent market direction. Strong support likely persists at the 40-day moving average near $129.00. A close below that level would have bears targeting the Oct 1 low at $125.00.
November feeder futures broke out above a downtrend line (now at $157.79) in place since late August, as well as the contract’s 40-day moving average, near $158.17. Those represent solid support, but a close below that area would have bears targeting the September low at $152.00. Today’s high likely marks resistance at $160.00, with back-up from October highs around $161.65. A push above that area would have bulls set to make a run to the $168.00 area.
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.
