Livestock Analysis | October 2, 2023
Price action: December lean hog futures led contracts lower Monday, falling $2.275 to $69.50 and settling on session lows. Nearby October futures fell 35 cents to $79.85.
Fundamental analysis: Lean hog futures saw followthrough selling after last Friday’s limit-lower close, though steep discounts to cash prices kept selling interest limited. December futures led the way lower as concerns over seasonal weakness mount, though we believe the downturn will be less than historical data suggests as retail demand has been strong amidst record beef prices. The CME lean hog index fell 56 cents today to $85.58 (as of Sept. 28) as the index dropped below the September low of $86.01. The preliminary calculations put the index down an additional 74 cents to $84.84 tomorrow in the largest daily decline since Sept. 1. Meanwhile, wholesale pork prices have stabilized around the $97.00 mark despite relative volatility in the individual values. Cutout fell 10 cents at midsession to $97.13, led lower by a $8.81 drop in butts.
While futures favored the downside today, December futures were supported just below the $70.00 level, over $15.00 below the lean hog index. Traders are anticipating a steep downturn in the index, though the index bottoming around the $70.00 mark the past two years has traders hesitant to push futures below that level. So while the index and nearby October futures are likely to continue to face selling pressure in the coming weeks, the deferred contracts deserve some attention as they may show relative strength.
Technical analysis: December lean hog futures led the complex lower Monday, though struggled to trade much below the $70.00 mark, despite dropping straight to that level on the open. Price seemingly pivoted near that level for the remainder of the session, which leaves it as important resistance into Tuesday. Additional resistance comes in at $71.75, then $72.75. Support stands at $69.45, then $67.325.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
Price action: December live cattle rose 42 1/2 cents to $188.35 and nearer the session low. November feeder cattle gained 80 cents to $255.70 and nearer the session low.
Fundamental analysis: The cattle futures markets today were pulled modestly higher by a bit better risk appetite in the general marketplace, following the surprise weekend news that the U.S. government will keep running until at least mid-November. However, gains in cattle futures were limited by the strong U.S. dollar index that hit another 10-month high today and by solid gains in the corn futures market.
Cash cattle prices last week traded at an average of $183.64, down $1.09. We look for cash cattle trading later this week to come in steady-weaker, as fresh contract cattle are coming in to start the month, which gives an advantage to the packers. The noon pork report today showed wholesale Choice grade beef cutout prices rose $2.15 to $302.93, while Select gained $2.87 to $278.91. Movement at midday was light at 42 loads.
Technical analysis: The live and feeder cattle futures bulls have the firm overall near-term technical advantage. However, price uptrends on the daily bar charts have at last temporarily stalled out. The next upside price objective for the live cattle bulls is to close December futures above solid resistance at the contract high of $192.05. The next downside technical objective for the bears is closing prices below solid technical support at $185.00. First resistance is seen at today’s high of $190.25 and then at $191.50. First support is seen at last week’s low of $187.725 and then at $186.00.
The next upside price objective for the feeder bulls is to close November futures prices above technical resistance at $263.00. The next downside price objective for the bears is to close prices below solid technical support at the August low of $248.925. First resistance is seen at $258.425 and then at $260.00. First support is seen at the September low of $254.05 and then at $253.00.
What to do: Get current with feed advice. All production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have soymeal needs covered in the cash market through mid-October. You are hand-to-mouth on corn-for-feed needs.
