Livestock Analysis | October 27, 2021
Price action: December lean hog futures fell 60 cents to $71.975 per hundredweight, the lowest closing price since $71.925 on Feb. 19. February futures fell 82.5 cents to $74.325.
Fundamental analysis: Futures extended a seasonal decline, despite live cattle strength and a morning surge in pork cutout values. Cash hog prices also continued a seasonal decline, as indicated by the preliminary CME lean hog index quote at $81.67, down 99 cents from the previous quote and the lowest since late February. Traders expect more weakness, since the December futures settlement came in almost $10 under the index with a little over six weeks left until expiration.
Pessimism over the wholesale market is also weighing on futures, despite the recent upturn in wholesale beef and hog slaughter rates still running 2.0% to 3.0% under comparable year-ago levels. The industry apparently disregarded the $3.22 jump posted by wholesale pork cutout at midday, likely due to the market’s habit of giving back morning gains and more in afternoon trading. Much depends upon wholesale ham market strength over the next six weeks. Traders clearly doubt the traditional pre-Christmas ham rally will occur or be limited this year, despite the significant decline in stocks levels versus the 10-year average. However, if ham values were to sustain a sizeable seasonal advance, that could offer considerable support to hog values.
Technical analysis: Bearish traders hold a technical advantage, fueled by December futures’ drop below support at $73.125 yesterday. Look for solid support to emerge at the September low of $71.275, but if that fails, bears will then be targeting February congestion in the $71.00 area, then the mid-January high around $69.50. The $73.125 area is now initial resistance, with significant backing marked by the 10-day moving average near 75.30, then the Sept. 10 low of $75.775.
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.
Fundamental analysis: Live cattle futures ended at an eight-week high on continued firmness in cash markets and carryover technical strength from yesterday’s rally. Feedlot operators appear to be gaining ground against the packers, with bids for slaughter-ready steers around $124.00 in the Texas and Oklahoma markets and $126.00 in Nebraska. Live steers averaged $124.39 last week. Late today, USDA reported live steers in five top feedlot areas at an average of $125.09, up from last week's average of $124.39.
Wholesale beef prices are also trending higher despite weakness today. Choice cutout values fell $1.13 to $283.63, down from a the nearly three-week high reached yesterday. Movement totaled 162 loads. Feeder cattle came under pressure from a rally in corn futures, which reached the highest levels since mid-August.
Technical analysis: December futures closed above the 100-day moving average, currently around $131.20, for the first time since Sept. 3, and remain in an uptrend that began with a four-month low of $125.00 reached Oct. 1. Upside targets include closing December futures above resistance at $134.00. Other chart levels to watch include last week’s low at $128.25 and the contract high at $138.225.
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.
