Hogs
Price action: February lean hog futures fell 20 cents to $84.375 while expiring December futures climbed 57.5 cents to $83.50.
Fundamental analysis: Hog futures surged on Wednesday’s opening but struggled to maintain gains as sellers quickly took hold of today’s session, closing prices lower on the day. Nearby December futures were supported by unexpected strength in the cash hog market, but deferred futures underwent selling pressure as traders are anticipating a possible extended period of seasonal weakness. The last couple of years, it has been common for seasonal weakness to persist into the new year, rather than making a low around Christmas. Traders think that could be the case this year, but the cash market this fall and winter has been anything but normal, with extended periods of strength in the cash market and a rather high seasonal low (at least thus far). The CME lean hog index is down another 13 cents to $83.33 as of Dec. 9, while the preliminary calculation actually puts the index up 28 cents to $83.61 tomorrow. Traders will keep a close eye on the index ahead of the December contract’s expiration on Friday at noon. Pork cutout fell another 65 cents to $92.49 at midsession, led lower by a $4.37 drop in primal bellies.
Technical analysis: February lean hog futures traded on either side of unchanged today before settling modestly lower. Bulls still hold a slight technical advantage, though their edge is waning. The 40-day moving average has capped losses the last two session and will remain support at $84.40. Continued weakness finds support at $83.75 then $82.875. Resistance stems from the 20-day moving average at $85.70 then former downtrend support, now resistance at $85.85.
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: 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: Cattle futures continued their recent surge, with expiring December live cattle jumped $2.40 to $192.25, with most-active February advancing $2.35 to $191.375. January feeder futures rallied $1.725 to $259.05.
Fundamental analysis: Technical issues have delayed USDA’s Wednesday report on cash cattle trading in the five-area markets, but today’s futures action suggests any trading that occurred confirmed the strength implied by Monday’s action. Tuesday’s report indicated modest numbers of fed steers had traded steady around $191.00 in both the Texas-Oklahoma and Kansas regions, with a very few changing hands at $189.00 in Iowa-southern Minnesota. Having packers pay steady money on a Monday strongly suggests producers will hold a decided advantage in trading later in the week, so it’s no real wonder futures followed through to the upside in the wake of yesterday’s strong advance.
The wholesale market reflected persistent firmness at noon today, with Choice cutout rising 21 cents to $311.94 after having fallen $2.41 yesterday. The Choice/Select spread was stated at $32.93 at midsession, also pointing to a shortage of high-quality beef. The CPI data on retail prices, especially that for steaks (which showed November prices rising just 1.8% and 1.0% above comparable year-ago and month-ago levels, respectively) implied consumer demand remains robust.
The USDA reported feeder cattle prices at the highly influential Oklahoma City fell sharply Monday, but that translated to a dip of just 63 cents to $261.62 when Monday’s quote for the feeder index was published yesterday afternoon. That partially explains feeder futures’ willingness to follow fed cattle higher today. That seems especially true given the approximate $2.00 discount now built into January futures.
Technical analysis: Bulls clearly own the short-term technical advantage in February live cattle futures in the wake of today’s advance. Today’s high marked initial resistance at $192.475. Look for resistance at the March 28 high of $194.40, at the March 14 high of $194.85 and the psychological $195.00 level. Look for the initial support at the Oct. 29 high of $190.325, with stout backing from the psychologically important $190.00 level. A drop below that point would have bears targeting the 40-day moving average near $187.53.
Bulls still own the short-term technical advantage in January feeder futures, but they face significant obstacles at slightly higher levels. Expect initial resistance at the psychological $260,00 level, then at the Dec. 2 high of $261.20. Look for added resistance at the contract’s July, June and May highs of $261.875, $262.275 and $262.425, respectively. The 10-day moving average places initial support near $257.43, with a strong band of support between Tuesday’s low of $256.325 and the Dec. 5 low of $254.55. A drop below that point would open the door to a test of the $250.00 level.
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.