Livestock Analysis | October 5, 2022
Advice: We advise livestock producers to cover the remainder of October soybean meal needs in the cash market. Combined with previous coverage you now have all meal needs purchased in the cash market through mid-November.
Price action: December lean hogs futures jumped $2.075 to $76.50, up from a 10-month closing low Tuesday, while the October contract soared $3.80 to $90.80.
Fundamental analysis: Hog futures rose sharply in a corrective, short covering-driven rebound from Tuesday’s plummet to the lowest prices since last December. Eroding cash fundamentals and expectations for a seasonal increase in supplies continue to weigh on futures, but the ongoing herd contraction shown in USDA’s Hogs & Pigs update last week and an outlook for tighter supplies in 2023 strongly suggest the market is overly bearish. Today’s CME lean hog index fell 89 cents to $93.44, near an eight-month low, and is expected to drop another 51 cents Thursday. Pork cutout values rose $2.45 to $100.74 early today but remain near the eight-month low posted last week.
Technical analysis: Hog futures retain a bearish near-term bias despite today’s firm rebound with the contract December contract suffering severe chart damage after dropping about 14% from its September high. But today’s bounce negated a potential bear flag pattern and may signal the market has reached a downside exhaustion point and may work sideways in coming days. Key support lies at Monday’s 10-month intraday low at $72.975, with a drop below that level opening the door to a test of $70.00. Initial resistance comes in at today’s high of $76.75 and the 10-day moving average at $78.05.
What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE -- You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
Advice: We advise livestock producers to cover the remainder of October soybean meal needs in the cash market. Combined with previous coverage you now have all meal needs purchased in the cash market through mid-November.
Price action: December live cattle gained 42.5 cents to $147.925. November feeders jumped $2.125 to $177.325.
Fundamental analysis: Sustained wholesale beef firmness continued supporting cattle futures. While choice cutout values dipped 54 cents early today to $247.50, the benchmark jumped $2.10 jump to $248.04 Tuesday. And while beef prices have declined significantly from late-summer levels, the losses at least partially reflect the recent surge in cattle slaughter, which has been well above the levels implied by the domestic feedlot population. Given current feedlot marketings and persistent tightness in market-ready supplies, the increased slaughter probably reflects vigorous demand from packers and grocers more than any excess of supply.
The cash cattle market seemingly confirms this view. Even as futures tumbled in late September, the average price for USDA-reported live steers fell just 16 cents last week to $144.78. A few head changed hands in Iowa and Nebraska Tuesday, with the average coming in at $146.76. While that’s a small sample, it implies this week’s cash trading may be firmer.
The underlying fed cattle strength apparently spurred renewed bullish interest in feeder futures. Bulls may have been reacting to the December meal contract’s drop below $400 per ton, suggesting diminished feed costs.
Technical analysis: Bears still own the short-term technical advantage in December live cattle. Recent chart action suggested a bear-flag formation that could carry the market back to the contract’s late-May lows. Bulls proved able to force a close above the 10-day moving average near $147.67 but face a band of resistance between today’s high at $148.425 and Monday’s top at $148.70. A push above that zone would have bulls targeting the contract’s 20- and 40-day moving averages at $149.21 and $149.69, then the psychological $150.00 level. Look for initial resistance at the 10-day moving average, then today’s bottom at $146.90. A drop below that level would open the door to a test of last Thursday’s low at $145.575. A follow-through dive would have bears targeting $140.00.
Today’s November feeder futures advance may have shifted the short-term technical advantage to bulls. The big advance decisively topped the highs posted Monday and Tuesday, as well as the 10-day moving average near $176.59. That opened the door to a retest of resistance at the 20- and 40-day moving averages near $179.96 (as well as the $150.00 level) and $183.49, respectively. Initial support seems likely to emerge around the 10-day moving average, then at today’s opening at $175.85, and later at the daily low of $174.40. A drop below that point would open the door to a test of the $170.00 level.
What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE -- You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.
