Livestock Analysis | October 28, 2021
Price action: December lean hog futures rose $3.225 to $75.20, the first gain in three days and the highest closing price since $76.025 on Oct. 20.
Fundamental analysis: Hog futures rose sharply in a corrective bounce after sharp declines earlier this week sent prices to 10-month closing lows. Cash fundamentals and technicals remain weak, but a strong jump in wholesale pork may have encouraged buying interest on ideas prices may be bottoming. Pork cutout values rose $7.28 to $100.75, led by a gain of over $23 in hams, USDA reported. Yesterday, cutout values dropped to the lowest average since $91.41 on March 3. Today’s movement was nearly 130 loads by midday. The latest CME lean hog index fell 99 cents to $81.67, the lowest since $80.70 on Feb. 25. Carcasses on national direct markets fell to $62.21 from $63.19 yesterday.
Stronger exports could help put a floor under futures prices. Earlier today, USDA reported net weekly pork sales at 29,500 MT for the week ended Oct. 21, up 41% from the previous week but down 1.0% from the four-week average. Year to date, U.S. pork exports are down 5.4% from the same period a year ago.
Technical analysis: Market bears have a solid near-term technical advantage in lean hogs, despite today’s gains. For market bears, downside objectives include closing December futures below support at the September low of $71.275, which is initial support, followed by $70.00. Upside objectives include closing December above solid resistance at $77.00. Other chart levels to watch include yesterday’s low at $71.775.
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.
Price action: December futures fell $1.25 to $130.325, the contract’s first decline in four days, while November feeder cattle futures slid $0.825 to $157.65. October live cattle futures, which expire tomorrow, fell $2.725 to $124.50 per hundredweight.
Fundamental analysis: Cattle fell in a corrective setback from the rally near two-month highs earlier this week, with weakness in boxed beef also pressuring futures. Futures’ recent surge appeared to prompt meatpackers to sharply boost their bids for country cattle. Live steers in five top feedlot areas were quoted at $126.37 early today, up $1.95 over the week prior. Cash trading was significantly more active than one week ago. That strength seemed to set the stage for continued strength in fed cattle futures.
However, Choice cutout values were down another 99 cents early today after dropping $1.13 yesterday, likely stoking concern over retail demand. That feedlot marketings aren’t current is sending warning signals to the market, since laggardly producer sales can eventually create a backlog of market-ready cattle, which in turn can be decidedly bearish for the cattle outlook. Greatly elevated consumer prices aren’t helping the situation, although vigorous export demand is apparently going far toward supporting the domestic market.
Today’s fed cattle losses certainly didn’t help the bullish cause in feeder futures, but it wasn’t surprising to see feeders continue sliding as the corn market extended its surge. As feed costs rise, feedyard managers have less leeway on how much they can spend on replacement yearlings.
Technical analysis: After decisively breaking out above tough chart resistance at $130.00 on Tuesday, December cattle futures could add little to those gains yesterday. That may have partially triggered today’s selling. We expect support at $130 to get strong backing from the 40-day MA near $129.00, as well as from standing support around $128.575. Look for initial resistance around Tuesday’s close at $131.45, with additional resistance at the July 30 low of $132.40. A move above that level would have bulls targeting $134.57.
After falling in response to surging corn prices Wednesday, November feeder futures failed badly at the conjunction of its 10-, 20- and 40-day moving averages near $158.95 today. Resistance at that level is backed by yesterday’s high of $160.10, then by the October high at $162.475. A close above that level would have bulls targeting mid-August highs in $168.00 to $168.25 area. Last week’s low at $156.575 marks initial support, but a drop below that level would seemingly open the door to a test of the September low of $152.00.
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.
