Livestock Analysis |October 25, 2023

Hogs

Price action: The late slowdown in the seasonal cash decline appeared to spur renewed buying in hog futures Wednesday, with nearby December futures bouncing $1.125 to $67.50.

Fundamental analysis: The numbers in the belatedly released USDA report on slaughter hogs traded Monday placed the official quote for Monday’s hog index at $78.67, down 40 cents from last Friday. The calculation from today’s report put Tuesday’s preliminary figure at $78.40, down 27 cents on the day. Thus, after falling 72 cents last Friday, subsequent losses have gotten smaller, suggesting the cash market may stabilize in the days just ahead.

Such ideas were probably encouraged by the wholesale market’s recent habit of rising at midday, then declining in the afternoon. It will be interesting to see how pork cutout ends today after surging $3.24 to $89.83 this morning. Emergent strength would not be terribly shocking, especially if this afternoon’s USDA Cold Storage report (see Evening Report for results) repeats the summer pattern of ham stocks at their lowest levels since 2020. Another low reading for whole turkey stocks might also prove supportive since such low inventories would likely force grocers to pay up for those cuts in order to gather adequate supplies for the holiday season.

Technical analysis: Bears still own the short-term technical advantage in December hog futures. However, today’s action implies their hold is weakening. Initial resistance now stands at the 10-day moving average near $67.74, with close backing from today’s high at $68.15. A breakout above that point would have bulls targeting the 20-day moving average near $69.52, then the psychological $70.00 level. Initial support is marked by last week’s mid-week lows around $67.30, with backing from today’s opening at $66.50, then at the daily low of $65.725 and subsequently last Friday’s contract low at $65.40. Psychological support is likely to emerge around $65.00, but a drop below that point would have bears targeting $60.00.

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 all corn-for-feed and soymeal needs covered in the cash market through November.   

Cattle

Price action: Comparative cash market stability is seemingly encouraging buying in the cattle and feeder markets. Expiring October live cattle futures rose $1.125 to $181.125, while most-active December rose 80 cents to $179.425. October feeder futures, which go off the board at noon Thursday, climbed 55 cents to $239.975, while November feeders jumped $2.625 to $238.05.

Fundamental analysis: As noted Tuesday, almost 10,000 head of Iowa cattle changed hands at $183.82 Monday, which was almost $4.00 over yesterday’s closing price for expiring October live cattle futures (which go off the board at noon next Tuesday (10/31). About 2,500 head of Iowa cattle sold for $183.00 yesterday, pulling the two-day average down to $183.62. In contrast, there has been minimal cash trading in the other main cattle feeding areas, and with producers having sold cattle quite actively over the past three weeks, there’s a significant chance very few animals will be traded in those areas this week. Given the implied currentness of their marketings, feedyard operators seem unlikely to be stampeded into slashing their asking prices, especially with wholesale beef prices proving quite firm. For example, choice cutout rose $1.71 to $307.69 (the highest since Sept. 12) at noon today. Cattlemen likely have keen memories of getting about $50/cwt less for their cattle two years ago when wholesale prices were substantially higher. Still, fed cattle trading at moderately lower levels at some point later in the week is probably the most likely outcome, but whether the cash market suffers a sustained decline during the coming weeks is very much open to question.

Fresh weakness in the grain and soy markets likely exaggerated the advance posted by feeder cattle futures today, with bulls also being encouraged by fed cattle firmness as well as the nearby contracts’ discount to the feeder index, now at $242.12. 

Technical analysis:  Bears clearly hold the short-term technical advantage in December live cattle futures, especially with a potential ‘bear flag’ formation now appearing on the chart. That suggests a fresh breakout to the downside, below support extending from today’s low of $178.35 and yesterday’s bottom at $177.30. That would open the door to a drop similar in size to that posted Monday (to the $172.00 area). Still, psychological support near $175.00 might limit such a breakdown. Today’s high marked initial resistance at $180.00. That’s backed by Tuesday’s and Monday’s highs at $181.425 and $183.65, respectively.   

Bears also hold the short-term technical advantage in November feeder futures. That chart also seems to depict a “bear flag” formation. A close below initial support in the $235.15 (Monday’s low) to $234.225 (Tuesday’s low) range would have bears targeting $230.00, then $225.00. Today’s high marked initial resistance at $238.70, with close backing from Tuesday’s top at $239.275 and the psychological $240.00 level. A push above the latter point would have bulls targeting the 10-day moving average near $245.10.

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 all corn-for-feed and soymeal needs covered in the cash market through November.