Livestock Analysis | November 30, 2021

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Hogs

Price action: February lean hogs fell 95 cents to $79.975, the lowest closing price since Nov. 11 but still a gain of $1.30 since the end of October. December futures rose 97.5 cents to $73.375, supported by anticipation of short-term cash strength.

Fundamental analysis: Hog futures joined a general commodity market downturn amid concern over global economic impact from the Omicron Covid variant and the implications of Federal Reserve Chairman Jay Powell’s comments about pursuing a tighter U.S. monetary policy.

The hog industry has seemed to be anticipating an early cash market low this fall but wasn’t giving many obvious signs of a looming rebound from recently depressed levels. In particular, the December contract continued trading at modest discounts to the CME Lean Hog Index (which futures cash-settle against). However, today’s December rise contrasted rather dramatically to the late drop in the index and is now priced at a significant premium. The preliminary figure for yesterday’s index quote slid 56 cents to $70.04, so the December future ended the day at a $3.33 premium.

Short-term optimism may reflect a bounce in wholesale pork values, which climbed $2.34 early today following a gain of $3.73 yesterday. USDA’s September USDA Hogs and Pigs report implied a 6.0% annual drop in hog supplies this winter. Concerns that the newest Covid strain would combine with tightening Fed policy to curb hog and pork demand in the new year apparently depressed the deferred contracts.

Technical analysis: February hog futures had seemingly broken out decisively to the upside on Nov. 16, with the upward trend apparently confirmed by modest follow-through gains through Thanksgiving. But last Friday’s plunge and this week’s early follow-through to the downside has given bears the near-term technical advantage. The fact that bulls couldn’t prevent a drop and close below the 40-day moving average at $80.46 offers strong evidence of that shift. The 40-day moving average is now acting as initial resistance, with considerable backing around the November 16 high at $83.425.

Last Friday’s high at $84.675 marks another layer of resistance. Today’s low at $78.675 likely represents initial support, with additional support coming in at the November 10 low of $77.675. A drop below that level would have bears targeting the October low at $74.05.

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.

 

Cattle

Price action: February live cattle fell $1.40 to $137.90, the lowest closing price since $137.70 on Nov. 19 but still up 2.6% from $134.225 at the end of October. January feeder cattle fell 87.5 cents to $164.85.

Fundamental analysis: Live cattle fell to the lowest levels in over two weeks amid a broad global commodity nosedive triggered by growing concern the Omicron coronavirus variant could harm demand. Eroding technical patterns and ideas the cash market may be leveling off after a strong month also weighed on live cattle. Feeder cattle held up better than live cattle, with a slumping corn market lifting deferred futures to modest gains.

Meatpackers aggressively bought animals much of this month, but some of last week’s purchases were for delayed delivery and packers have access to fresh contracted supplies for December. Last week’s cash cattle price averaged $138.17, up 3.8% for the eighth consecutive weekly gain and the highest weekly average since June 2017. Also, wholesale beef prices that appeared to be stabilizing last week started this week on a soft note. Choice boxed beef fell $1.05 early today to an average of $276.53, the second daily decline in a row. Movement by midday was 87 loads.

Technical analysis: Live cattle have taken a bearish turn following yesterday’s reversal day lower, when February posted a contract high at $141.85 before tumbling to end with a loss. The market is still in a small uptrend drawn from the Oct. 1 low but is nearing key support levels. Chart levels to watch include the 40- and 100-day moving averages at $136.10 and $135.90, respectively. Downside objectives for bears is closing February below solid support 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.

 

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