Hogs
Price action: April lean hog futures surged $1.35 to $94.325 and closed nearer session highs while nearby February futures climbed 72.5 cents to $89.45. The latter expires at noon Friday.
Fundamental analysis: April lean hog futures surged to fresh contract highs today, supported by persistent strength in the CME lean hog index. The cash market continues to reflect fundamental strength as the USDA’s December hog population estimate appears to be overstated. Weekly slaughter continues to undercut a year ago, leading to accelerating strength in the cash market. The CME lean hog index is up another 44 cents to $86.19 as of Feb. 10. The preliminary calculation puts the index up another 89 cents to $87.08 tomorrow. That would by far be the largest gain in the index since the early January low and would be the highest quote for the index since Nov. 20. The index is currently $12.97 above last year at this time, a testament to the strength seen in the cash market. Pork cutout fell 91 cents to $98.81 this morning, led lower by losses in loins and butts. While prices fell, movement remained quite strong at 197.58 loads.
Technical analysis: April lean hog futures surged to fresh contract highs today, continuing Tuesday’s technical breakout on the daily bar chart. Today’s high of $94.75 marks initial resistance, with strength above that mark targeting resistance at $95.00 then $95.825. Support comes in at the prior high of $93.60 then $92.50 on resurgent selling pressure, while stiff support lies at $92.00, which capped most of the upside the last couple of weeks.
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: You should have all soymeal needs covered in the cash market through March. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: Cattle futures traded mixed Wednesday, with February live cattle sliding 52.5 cents to $199.15 and most-active April slipping 27.5 cents to $195.725. March feeder futures gained 20 cents to $264.975.
Fundamental outlook: The cattle and beef sector is clearly expecting continued cash market weakness in the days ahead. That has largely been reflected by early-to-mid-week cash and wholesale prices, as well as futures. The USDA reported light trading in Kansas and the Texas-Oklahoma region Tuesday, with about 2,000 head officially changing hands at $202.89. That price reflects an approximate drop of about $3.00 from last week. Given the current atmosphere, that will probably be reflected by similar losses in the northern states later in the week, although larger losses can’t be ruled out.
Beef prices are also proving weak, with Tuesday’s slippage being followed by more of the same today. Choice beef cutout fell $1.52 to $320.94 at midsession, while select cutout dropped $2.07 to $310.14. Prices well above $300.00/cwt are still extremely high by historical standards, but are certainly down substantially from January highs (for choice cutout) over $330.00. Given these cash and wholesale losses, as well as ongoing futures weakness, more of the same certainly can’t be ruled out in the short run. Conversely, the discounts already built into nearby future might easily make life difficult for bears if/when current downward momentum dries up.
The same could be said for feeders as well, since March futures ended Wednesday trading over $10.00 below the latest quote for the CME feeder index at $275.85.
Technical outlook: Bears now own the short-term technical advantage in April live cattle futures, especially after bulls proved unable to overcome initial resistance at the 40-day moving average near $197.00 after falling below that pivotal point yesterday. Look for added resistance at the contract’s 10- and 20-day moving averages near $198.73 and $199.94, respectively. Psychological resistance associated with the $200.00 level will reinforce resistance at the latter point. Today’s low confirmed initial support at yesterday’s low of $194.95. Buying at that level is likely being bolstered at the psychological $195.00 level. Conversely, a close below that area will have bears targeting $190.00.
This week’s March feeder futures’ drop below its 40-day moving average near $266.30 has flipped that level to initial resistance as well. Expect a zone of resistance between yesterday’s high of $268.32 and the contract’s 20-day moving average near $270.58, with psychological resistance at the $270.00 level also encouraging bearish selling. The action posted over the past five sessions indicates stout support between the $264.00 level and yesterday’s low of $263.15. A drop below the latter point would open the door to a test of the $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 should have all soymeal needs covered in the cash market through March. You are hand-to-mouth on corn-for-feed needs.