Hogs
Price action: Hog futures slipped lower Thursday, with nearby February futures skidding 7.5 cents to $83.625 at the close.
Fundamental analysis: The cash hog and wholesale pork markets sustained their recent strength Thursday. The CME confirmed that Tuesday’s hog index quote had risen 18 cents to $84.16 and today’s USDA data indicates Wednesday’s index will rise another 5 cents to $84.21 when the CME publishes it tomorrow. And despite the hog/pork complex being overdue for year-end weakness, especially with most grocers likely having completed their ham and pork purchases for the holiday season, pork cutout held up remarkably well again today. Primal ham values surged $3.81 to $104.02 Wednesday, seemingly marking strong last-minute buying from grocers. That boosted pork cutout $1.58 to $96.35. Ham prices did drop $1.60 at noon today, with pork cutout sliding 38 cents to $95.97, but such sustained strength within 6 days of Christmas is remarkable. Nevertheless, wholesale ham prices are likely to fall substantially over the next two weeks, which in turn could combine with hog supplies near their annual highs, as well as weak hog demand from packers as they work holiday-shortened schedules, to undercut the complex. The big question is how far and how long prices will fall. Discounted February futures suggest the drop will be substantial and/or last awhile. We are somewhat more optimistic, thinking nearby futures are somewhat underpriced.
Technical analysis: Bears own the short-term technical advantage in February hog futures at this point, especially after bulls proved unable to mount a serious challenge of initial resistance at the 10-day moving average near $84.70, much less the psychologically important $85.00 level or the 40-day moving average near $85.19. Conversely, a breakout above that range would likely have bulls targeting the $90.00 level. Today’s low marked initial support at $83.60, which is backed by Wednesday’s and Tuesday’s lows at $83.10 and $82.75, respectively. A close below the latter would open the door for a run at the psychologically important $80.00 level.
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: February live cattle fell $1.775 to $186.55 Thursday, near the session low and hit a two-week low. January feeder cattle fell $2.525 to $254.475, nearer the session low and hit a nearly four-week low.
Fundamental analysis: Technical selling from the speculators was featured in the cattle futures markets today, as the near-term chart postures for both live cattle and feeder cattle have deteriorated recently. Also a negative for cattle today was a “risk-off” mentality in the general marketplace, following a surprisingly hawkish pivot from the Federal Reserve on Wednesday afternoon that spooked the stock market and sent U.S. Treasury yields higher. The potential for a U.S. government shutdown late this week also injected more uncertainty into the marketplace. Traders may also be unwilling to push the long side ahead of Friday’s monthly USDA Cattle on Feed report.
The discounts live and feeder cattle futures markets hold to their respective cash markets at present is also keeping futures traders pessimistic about the coming weeks. Cash cattle trading has been light so far this week, though some action occurred at midweek at lower prices. Trading was active in both Nebraska and Iowa-southern Minnesota Wednesday, with live steers averaging $195.10. A small lot of lower-quality Kansas cattle traded again, as on Tuesday, around $191.00. The northern trade will very likely carry the day and pull southern prices up as well.
The noon report today showed wholesale boxed beef cutout values widely mixed, with Choice soaring $6.80 to $321.64 and Select down $1.84 to $283.71. The Choice-Select spread widened out to $37.93, suggesting still-tight supplies of quality cattle in feedlots. Movement at midday was 55 loads. The disparate differences seen at noon will likely narrow when the afternoon report is released.
USDA this morning reported U.S. beef export sales of 7,200 MT for 2024, down 35% from the previous week and 5% from the four-week average.
Technical analysis: The live cattle futures bulls have become exhausted to suggest a market top is in place. The next upside price objective for the live cattle bulls is to close February futures above solid resistance at the December high of $193.225. The next downside technical objective for the bears is closing prices below solid technical support at the November low of $184.40. First resistance is seen at today’s high of $188.40 and then at $190.00. First support is seen at today’s low of $186.35 and then at $185.00.
Feeder cattle futures bulls are fading. The next upside price objective for the feeder bulls is to close January futures prices above technical resistance at the December high of $261.20. The next downside price objective for the bears is to close prices below solid technical support at $250.00. First resistance is seen at today’s high of $256.325 and then at Wednesday’s high of $258.35. First support is seen at today’s low of $253.80 and then at $252.00.
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 the end of December. You have all soymeal needs in the cash market through the third week of January.