Hogs
Price action: April lean hog futures fell a nickel to $86.50 and closed near mid-range.
Fundamental analysis: Nearby lean hog futures traded on either side of unchanged before settling modestly lower on the session. Futures seemed caught between the stabilizing lean hog index and weakness in pork cutout today. Cutout continues to drive trade in the cash hog market. As pork cutout went up near recent highs earlier this week, the CME lean hog index stabilized, falling a penny to $89.70 as of March 10. The preliminary calculation puts the index up 7 cents to $89.77 for tomorrow’s quote, though the gain is likely to be short-live as the second day in the index’s calculation points to moderate weakness once again.
The choppy action in the index can be attributed to choppy action in pork cutout. After poking above $100.00 late last week and earlier this week in morning trade, price pressure ensued in the afternoon each occurrence. Meanwhile, each time cutout trends lower, movement picks up, indicating strong grocer demand under the market. This equilibrium between $95.00 and $100.00 has capped pork cutout’s price over the past month. Once that range is broken, a new trend is likely, pulling cash hog prices in tandem.
Technical analysis: April lean hog futures had little direction today, though bears retain a slight technical advantage on the daily bar chart. Prices were supported by 200-day moving average support at $86.05. Additional selling looks to challenge support at the psychological $85.00 mark, then $83.675. Resistance stands at $87.25, the 20-day moving average, which capped gains today. Strength above that mark looks to challenge resistance at $88.00.
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: You have all corn-for-feed needs covered in the cash market through March. You have all soymeal needs covered in the cash market through April.
Cattle
Price action: Cattle and feeder futures continued their recent advance Wednesday. April live cattle futures climbed $1.85 to $201.40. April feeder futures jumped $3.025 to $280.725.
Fundamental analysis: Last week’s rebound in cash cattle prices likely set the stage for continued short-term gains, which goes far toward explaining the advance posted today. On the other hand, beef packers are apparently in no mood to give in to producer asking prices, as indicated by the complete dearth of cash trading of fed cattle so far this week. But packers are probably a bit more amenable to boosting bids in the wake of the ongoing rebound in wholesale beef prices. For example, after having jumped $3.62 to $321.20 Tuesday, choice beef cutout gained another five cents to $321.25 at midsession today. Select cutout had dipped Tuesday but bounced $1.65 to $308.51 at noon. Packer margins are still in the red, but they are much improved from a few weeks ago.
The recent surge has flipped the April live cattle contract from a sizeable discount to a slight premium over last week’s cash average (at $200.28). We think the market is anticipating another cash market gain this week. Moreover, given the cash market’s history of reaching a seasonal peak in the late March and April period, having April futures trade at a premium over cash is common.
The feeder market continues reflecting the cyclical shortage of calves and yearlings in the U.S. cattle population. That’s best represented by the latest $2.59 jump in the feeder index, now at $276.54. Today’s sizeable corn and soybean losses, implying reduced feed costs, were also very supportive of the feeder market.
Technical analysis: Bulls clearly own the short-term technical advantage in April live cattle futures at this point. Indeed, today’s advance and high-range close might easily be viewed as a bullish breakout from a “bull flag” formation. Today’s high marked initial resistance at $202.025. Look for added resistance at the Jan. 24 high of $203.50, then at the psychological $205.00 level. Initial support at today’s low of $199.90 essentially represents stout psychological support at the $200.00 level. A close back below that point would have bears targeting the 40-day moving average near $198.00, then the psychological $195.00 level.
April feeder futures posted a new contract high at $281.525 today, so bulls clearly hold the short-term technical advantage. Look for initial resistance at that point, with backing from the January contract’s all-time high (for nearby futures) of $282.25. A push above that level would have bulls targeting $285.00. Look for initial support at the psychological $280.00 level, with backing from today’s low at $278.45. Added support at the 10-day moving average near $275.83 is backed by strong psychological support at $275.00.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You have all corn-for-feed needs covered in the cash market through March. You have all soymeal needs covered in the cash market through April.