Hogs
Price action: February lean hog futures climbed 50 cents to $83.70 and settled nearer session highs.
Fundamental analysis: Lean hog futures saw modest strength today despite weakness seen across the crop and livestock markets as cash fundamentals have traders looking for an early seasonal low. Hog futures showed relative strength despite bearish outside markets as the strength in the cash market, particularly the CME lean hog index, is difficult for traders to ignore. The CME lean hog index is up 14 cents to $83.98 as of Dec. 16, which is 65 cents above the recent low. The preliminary calculation puts the index up another 18 cents to $84.16 tomorrow. The strength in the cash index has traders keen on the cash market as February futures continue to trade at a slight discount to the index. Strength in pork cutout has led the recent cash market strength. Pork cutout is up another 90 cents to $95.67 at midsession, which would be a fresh for-the-move high if sustained through afternoon trade. Strength in hams and picnics led strength this morning, though movement fell to 123.96 loads.
Technical analysis: February lean hog futures posted modest gains today though traded within yesterday’s range. Bears maintain a slight technical advantage. Resistance lies at $84.35, the 40-day moving average, then the psychological $85.00 mark on additional strength. Meanwhile, resurgent selling pressure finds support at yesterday’s low of $82.75 then the Nov. 19 low of $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: 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 and feeder futures continued their slide Wednesday, with expiring December cattle falling 95 cents to $191.30 and most-active February losing $1.425 to $188.325. January feeders slid 47.5 cents to $257.00.
Fundamental analysis: Traders apparently expect short-term cash market weakness across the cattle complex, since Dec. live cattle closed about $3.00 below last week’s cash average with just two weeks until the contract’s expiration on New Year’s Eve. Moreover, February cattle traded another $3.00 lower despite the cattle market’s historical tendency for first-quarter strength. A few cattle traded at $195.50 Monday, which seemingly bodes well for this week’s cash result.
The pessimism built into futures doesn’t seem especially well justified, especially with current Choice beef prices reaching record highs for this time of year. Choice cutout was stated at $314.13, down $1.50 from Tuesday’s close, at noon today, while Select cutout fell $3.08 to $285.42. The latter doesn’t seem all that impressive, but it’s about $7.00 above the week-ago figure. The Choice/Select spread has also narrowed from around $35.00 a week ago to $28.71 at midsession. Given the Choice market strength, this suggests grocer and consumer demand for select product is proving extremely robust.
Bears may be anticipating a bearish result from Friday’s USDA Cattle on Feed report. A Reuters survey indicates the industry is expecting the report to state the Dec. 1 U.S. large-lot feedlot population at 11.975 million head, down 0.3% from a year-ago. That would reflect November placements at 94.9% of last year, whereas marketings are expected to come in 1.8% under the comparable 2023 result. It will probably take a significant divergence from those estimates to spur a significant futures reaction next Monday.
Nearby feeder futures remained weak, with January ending the day over $5.00 below the latest quote for the CME feeder index at $262.54 yesterday afternoon. Given the market’s history of winter strength, as well as the ongoing blockade of imported Mexican calves and yearlings due to screw worm concerns, one can argue feeder futures are undervalued.
Technical analysis: Bulls still seem to own the short-term technical advantage in February live cattle, especially after bears proved unable to decisively penetrate 40-day moving average support near $187.85. That’s now reinforced by today’s low of $187.775. A breakdown from that point would open the door to a test of the Dec. 9 low of $185.90, then the Nov. 11 low of $184.40. The contract’s 20- and 10-day moving averages mark resistance at $188.62 and $189.09, respectively, with psychological backing at the $190.00 level. A close above the latter would have bulls targeting Monday’s high at $193.225.
January feeder futures seem to be holding near a pivotal point on the charts, although one can reasonably argue bulls hold a slight advantage after bears couldn’t force a close below solid support between the contract’s respective 10- and 20-day moving averages at $256.89 and $256.69. Those are backed by Tuesday’s low at $254.90, but if bears can force a drop below that point, they’ll be focused on the psychological $250.00 level. Today’s high marked initial resistance at $258.35. However, a move above that point would open the door to a test of the psychologically important $260.00 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.