Livestock Analysis | October 26, 2023
Price action: Hog futures rose again Thursday, with nearby December gaining $1.125 to $68.625.
Fundamental analysis: Sustained cash market stability seemed to encourage bulls in hog futures again today. The CME stated the hog index for Tuesday at $78.41, down 26 cents from Monday (and up one cent from the preliminary figure). Wednesday’s data puts the index estimate for that day down another 23 cents at $78.18. Strong early buying probably marked a reaction to Wednesday’s closing wholesale quote, which represented a daily gain of $1.00 to $87.59 from Tuesday’s close, instead of registering a daily decline in the wake of morning firmness, as has been the recent pattern. Conversely, pork cutout declined $1.43 to $86.16 at midsession, which likely reduced bullish enthusiasm.
Bulls may also have been reacting to Wednesday’s USDA Cold Storage report, which indicated a 6.5-million-pound drop in September pork inventories to $462.8 million pounds. That deviated significantly from the historical five-year norm of rising about 3.0 million pounds last month. Ham stocks fell 4.8 million pounds during September, which contrasted with the 10-year average of rising about 11 million pounds. Frozen whole turkey stocks fell to their lowest ending-September total (at 227.7 million pounds) since 2006. Again, these low ham and turkey stocks for the holiday season seem likely to force grocers to pay up for hams in the coming weeks. When combined with generally improved demand for pork, we still suspect the hog and pork complex will not fall as significantly as implied by nearby futures.
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.
Price action: Expiring October live cattle futures rose 57.5 cents to $181.70 Thursday, while most-active December slipped 10 cents to $179.325. October feeder futures went off the board 57.5 cents higher at $240.55. Nearby November feeders tumbled $1.55 to $236.50.
Fundamental analysis: The cattle market began Thursday on a firm note, which likely reflected modest cash losses, when compared to the huge futures breakdown suffered Monday, as well as continued wholesale market firmness. But midsession reports apparently undercut prices. Wednesday’s cash trade proved rather weak, with limited trading in Nebraska and Iowa at $182.88 dragging the three-day average lower once again. These latest results compare poorly to last week’s midweek trading around $186.50. Choice cutout also dove $3.89 to $303.61 at midsession. The publication of the final weekly slaughter numbers from two weeks ago (as is usual for Thursday) stated steer dressed weights at 927 pounds, up five pounds from the week prior and three pounds over year-ago. Given widespread talk that producers were selling cattle aggressively at that time, the sizeable seasonal gain likely raised doubts about feedlot industry currentness.
Feeder futures also proved surprisingly weak, especially with the grain and soy complexes struggling. The latest dip in the feeder index, now at $241.63, may also have spurred selling in the yearling market.
Technical analysis: Bears still hold the short-term technical advantage in December live cattle futures, with the seeming “bear flag” formation still present on the chart. Again, a follow-through breakdown could carry the market down to the $172.00 area. Support still appears solid between today’s low of $178.575 and Tuesday’s bottom at $177.30, but a drop below the latter point would open the door to a test of $175.00, then $172.00. Today’s high placed initial resistance at $180.325, with psychological resistance around $180.00 likely discouraging buyers as well. Look for stiff resistance around the 10-day moving average near $183.29 and Monday’s high of $183.65.
Bears still own the short-term technical advantage in November feeder futures as well, especially with a potential “bear flag” also still showing up on that chart. Given the breakdown suffered last Thursday, Friday and Monday, a followthrough, technically-driven plunge to the $225.00 to $220.00 area can’t be ruled out. Still, support seems solid between the $236.00 area and Tuesday’s low of $234.23. A drop below the latter point would have bears immediately targeting $230.00. Today’s high confirmed resistance around $238.50. That likely enjoys backing at the psychological $240.00 level, then at the 10-day moving average near $243.42.
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.
