Hogs
Price action: February lean hogs dropped $1.925 to $84.575, nearer the daily low and hit a three-week low.
Fundamental analysis: The lean hog futures market today saw heavy profit taking and weak long liquidation from the speculators, amid weakening cash hog market fundamentals.
The latest CME lean hog index is down 27 cents to $83.46 as of Dec. 6, extending the seasonal decline. Wednesday’s projected hog index price is down another 13 cents at $83.33 (for Dec. 9). Today’s national direct five-day rolling average cash hog quote is $85.07. The noon report today showed pork cutout value down 89 cents to $92.74, led by a drop in ribs. Movement at midday was decent at 212.28 loads.
December lean hog futures, which expire Friday and are settled against the cash index on Dec. 17, finished 52 1/2 cents below today’s CME cash hog index. February lean hog futures now hold just a $1.115 premium to the cash index, suggesting trader pessimism at the beginning of the new year.
Technical analysis: The lean hog futures bulls are fading to begin to suggest a market top is in place. A three-month-old price uptrend on the daily bar chart is now in some jeopardy. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at the contract high of $89.60. The next downside price objective for the bears is closing prices below solid technical support at the November low of $82.10. First resistance is seen at $85.00 and then at $86.00. First support is seen at today’s low of $83.75 and then at $82.10.
What to do: Get current with feed coverage.
Hedgers: You have 50% of first-quarter production hedged in February $84.00 puts at $3.35.
Feed needs: Feed needs: You have all corn-for-feed needs covered in the cash market through the end of December. You have all soymeal needs in the cash market through the third week of January.
Cattle
Price action: February live cattle futures rallied $2.00 to $189.025 and closed on session highs. January feeder cattle futures rallied $1.525 to $257.325, while deferred contracts posted stronger gains.
Fundamental analysis: Live cattle futures surged higher for the second consecutive session, negating last week’s weakness. Steep discounts to the cash market supported strength in futures this week, with December futures settling just modestly below last week’s cash average. Traders had been anticipating weakness in the cash market, but continued strength in cash cattle spurred futures strength as early trade this week is steady with that of a week ago. As nearby futures have recovered near the November highs, technical headwinds will garner more attention as selling efforts are likely to increase the nearer February futures get to the $190.00 mark. Meanwhile, wholesale beef prices gave up a portion of recent strength this morning, further pressuring packer margins. Choice cutout slipped $2.17 to $311.97 at midsession, while Select fell 4 cents to $279.30.
Feeder cattle bulls showed some signs of life today after languishing near recent lows the past couple of sessions. Nearby futures have struggled to garner much bullish momentum as corrective selling drove trade in the first week of December. While futures struggled, the feeder cattle index continued to march higher as the cash market surged. Supplies halted out of Mexico have supported feeder futures, particularly in the south, underpinning futures. The most recent index quote is up 42 cents to $262.25, a healthy premium above January futures. Traders are anticipating an influx of supplies when USDA’s ban on Mexican cattle imports is lifted. The timeline remains uncertain, but signs currently point to restrictions being lifted in early January.
Technical analysis: February live cattle futures surged higher today and closed near last week’s highs. Neither bull nor bear holds the technical advantage as prices have trended sideways for a month and a half. Strong resistance persists at $189.50 and is quickly reinforced by psychological $190.00 resistance. Resurgent selling pressure finds support at $188.00, which is backed by the 40-day moving average at $187.05.
January feeder cattle futures reversed higher off 10-day moving average support, confirming bulls’ hold of the technical advantage. Additional strength finds resistance at today’s high of $258.325, which is backed by the Nov. 29 for-the-move high close at $259.475. Bulls are looking to hold support at the 10-day moving average at $256.02 on a reversal back lower.
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 the end of December. You have all soymeal needs in the cash market through the third week of January.