Hogs
Price action: February lean hogs fell 10 cents to $87.85 and near the daily low.
Fundamental analysis: The lean hog futures market today saw mild profit taking from recent gains that saw the market hit a contract high last week. Cash hog market fundamentals are also weakening a bit. The latest CME lean hog index is down another 85 cents to $84.36 as of Nov. 29, extending the recent price slide. Wednesday’s projected cash index price (for Dec. 2) is down another 30 cents at $84.06, though the second day of the calculation (remember the index is a two day average) is actually up from the prior day, showing signs of relative strength. The premium February futures hold to the cash index suggests hog traders believe a market price bottom will come sooner rather than later. The national direct five-day rolling average cash hog price quote today is $86.20.
The noon report today showed pork cutout value slipped $1.21 to $91.45, led by losses in ribs, hams and bellies. Movement at midday was decent at 178.24 loads.
Technical analysis: The lean hog futures bulls have the solid overall near-term technical advantage. A three-month-old price uptrend is in place on the daily bar chart. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at $92.00. 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 the contract high of $89.60 and then at $91.00. First support is seen at $87.00 and then at this week’s low of $86.15.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: You have 50% of fourth-quarter production hedged in December $84.00 put options at $2.075 and 50% of first-quarter production hedged in February $84.00 puts at $3.35.
Feed needs: You have all soymeal needs in the cash market through the third week of January. You should also have all corn-for-feed needs covered in the cash market through mid-December.
Cattle
Price action: February live cattle futures climbed $1.15 to $189.075 and settled nearer session highs. January feeder cattle futures surged $2.45 to $259.30 and closed near session highs.
Fundamental analysis: Both live cattle and feeder cattle futures rebounded from yesterday’s weakness and closed back near recent highs. Both fell under selling pressure yesterday under optimism that the New World Screwworm (NWS) would only delay feeder cattle imports from Mexico for three weeks, but strength today indicates that traders are a little more conservative on that score. A USDA official said “things are looking as good as we can hope for at the moment” with just one case of NWS found thus far. A new process is in order that will help negate risks of the disease. U.S. Feeder cattle imports are expected to return following Christmas, with the holiday slightly delaying the original timeline. Live cattle futures were also likely supported by continued strength in the cash cattle market. After climbing $3.58 to $189.97 last week, cash cattle trade has had a slow start to the week, with just 164 head trading hands on Monday in Nebraska, which is down about 50 cents from last week’s average for the area. Recent strong purchases by packers, contracted supplies becoming available and poor packer margins have cash sources expecting weaker cash trade, so continued strength in that market likely warrants continued strength in nearby futures. Wholesale beef values were mixed this morning as Choice cutout rose $1.03 to $314.04 while Select dipped 40 cents to $276.60. That widened the Choice/Select spread to $37.44, still indicating a shortage of high-quality beef.
Feeder cattle futures were supported by strong gains in the cash feeder market, which saw gains as much as $15 above last week’s average. The ongoing concern and uncertainty over the feeder cattle outlook is likely to breed volatility in the near future.
Technical analysis: February live cattle futures rebounded today and closed near last week’s highs. There has been little trade outside of $187.50 and $189.00 the past few weeks as neither bull nor bear holds the technical advantage. Bulls are looking to overcome resistance at $189.00 before tackling the Nov. 25 high of $190.05. The latter mark has capped most of the upside in the past six months. Support stems from $188.00, which capped most losses yesterday, then $187.025.
January feeder cattle futures reversed most of yesterday’s loss and closed near recent highs as bulls continue to maintain full control of the technical advantage. Initial resistance stands at the for-the-move high close of $259.475, which is backed by the for-the-move high of $261.20.
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 soymeal needs in the cash market through the third week of January. You should also have all corn-for-feed needs covered in the cash market through mid-December.