Hogs
Price action: February lean hogs fell 32 1/2 cents to $81.30, nearer the session high and hit a 2.5-month low early on.
Fundamental analysis: Today’s new for-the-move low in February hogs, including a technically bearish monthly low close, is likely to invite increased speculator, chart-based selling interest to hog futures market in the near term. However, the bulls can argue today’s high-range close in February hogs begins to suggest bearish selling may be near-term exhausted.
Weakening cash and wholesale market fundamentals continue to provide selling pressure to hog futures. The latest CME lean hog index is down 50 cents to $84.35 as of Dec. 27. Thursday’s projected cash index price is down another 8 cents to $84.27. The national direct five-day rolling average cash hog price quote today is $79.27. The noon report today showed pork cutout value fell another $2.41 to $91.91, led by losses in picnics, loins and bellies. Movement at midday was solid at 220.82 loads, showing better demand at the lower prices. Hog bulls are worried the seasonal selling pressure could prompt cash hog and fresh pork market weakness into the new year.
Hog traders are monitoring the potential for a major cold outbreak over much of the U.S., including winter storms, starting early next week, which could cause livestock stress and limit marketings.
Technical analysis: February lean hog prices are trending down on the daily chart to suggest a market top is in place and suggest more downside price pressure in the near term. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at $85.00. The next downside price objective for the bears is closing prices below solid technical support at $76.00. First resistance is seen at today’s high of $82.00 and then at $83.00. First support is seen at today’s low of $80.00 and then at $79.00.
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: The December live cattle contract expired at $193.85, down 22.5 cents from Monday, at noon Tuesday. February futures bounced $1.30 to close at $191.60, while January feeders rallied $1.40 to $263.025 at the close.
Fundamental analysis: The underlying cattle/beef situation remains very supportive of elevated prices. All signs point to persistently strong demand from grocers and consumers. After leaping above $325.00 Monday, choice beef did set back 51 cents to $324.85 at noon, while select cutout dipped 48 cents to $294.28. Yesterday’s closing quote for choice cutout represented a fresh record high for the fall-winter period. That strength at least partially reflects the reduced beef production coming out during the holiday season, but it’s also clear grocers continue buying beef actively and keeping a lid on prices they’re charging consumers. All signs point to consumer enthusiasm for beef at current retail levels.
One could also argue the market is starting to react to the prospect of a winter storm hitting the Great Plains this weekend. Although recent weather over the plains hasn’t been particularly mild, it probably hasn’t been cold enough to really acclimate feedlot cattle to the anticipated cold and wet conditions. It remains to be seen how bad the weather will get, but a sustained bout of snow and cold could exert a huge amount of stress on those animals and greatly reduce the supply of market-ready animals available to beef packers. Cash and futures prices could surge in such conditions.
The feeder index has plunged to start this week. After having reached $263.05 for Christmas Eve, it was quoted at just $253.97 Monday afternoon. That almost surely reflects the lightness of yearling trading around the Christmas holiday. Traders have largely ignored the breakdown as a result, with the industry very likely anticipating a strong rebound early next week, if not before.
Technical analysis: Bulls retained their short-term technical advantage in February live cattle futures through the end of the year. Today’s advance made the daily high of $191.70 initial resistance. That’s backed by the Dec. 16 high of $193.225, then by the psychological $195.00 level. A breakout above the latter would have bulls targeting $200.00. Initial support extends from the Oct. 29 high of $190.325, with obvious backing from the psychological $190.00 level. A drop below that point would open the door to a retest of support stemming from the Oct. 2 high of $188.425, then the 40-day moving average near $187.95.
Today’s advance clearly indicated bullish dominance of the short-term technical situation in nearby January feeder futures. Initial support at today’s low of $261.25 is backed by the psychological $260.00 level, then by the 10- and 20-day moving averages near $258.26 and $257.67, respectively. A drop below the latter point would have bears targeting the 40-day moving average near $253.45. Today’s high of $263.375 essentially matched resistance extending from the contract’s May high at $263.425. A breakout above that point would open the door to a test of the $265.00 level, then $270.00.
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.