Hogs
Price action: April lean hogs rose 60 cents to $93.20, nearer the daily low.
Fundamental analysis: The lean hog futures market today backed off its daily high on some modest and routine profit-taking after hitting a contract high last week. Cash hog and pork market fundamentals remain solid, overall. The latest CME lean hog index (as of Feb. 13) is $88.77, up 71 cents and continuing its rally off the January low. Wednesday hog index (for Monday) is projected up another 70 cents to $90.19. The national direct five-day rolling average cash hog price quote today is $88.58. The noon report today showed pork cutout value fell $1.65 to $100.82, led by losses in primal bellies. To have the cutout value above $100.00 at this time of year is a positive signal of good retailer demand. Movement at midday was decent at 147.88 loads.
Hog market bulls are banking on the late-winter cash rally to continue, especially if daily hog slaughter levels start running significantly below year-ago numbers. However, a shift to sustained hog slaughter increases, as suggested by the December USDA Hogs and Pigs report, would likely pressure cash and futures prices. Conversely, good demand from pork processors, retailers and consumers is likely to continue supporting hog and fresh pork prices. It’s likely retailers will build ham inventories for Easter in the coming few weeks.
Technical analysis: Lean hog futures bulls have the solid overall near-term technical advantage. The next upside price objective for the hog bulls is to close April prices above solid chart resistance at $96.00. The next downside price objective for the bears is closing prices below solid technical support at $89.00. First resistance is seen at the contract high of $94.75 and then at $95.00. First support is seen at last Friday’s low of $92.325 and then at $91.00.
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 to higher Tuesday. Expiring February live cattle slid 30 cents to $197.45, while most-active April futures skidded 22.5 cents to $194.025. In contrast, March feeder futures jumped $3.375 to $269.725.
Fundamental analysis: Cattle traders seemed uncertain as to how the market would act this week, with live cattle futures trading on either side of unchanged. The uncertainly was reflected by the split close as well, with the nearby contracts losing ground, whereas the deferred contracts posted increasingly large gains as expiration dates extended. Given the sizable cash market losses posted the past two weeks, especially the big $4.14 drop to $202.91 posted last week, most traders are likely expecting more of the same this week. The discount built into the expiring February contract, which goes off the board next Friday (2/28), implies cash losses of about $5.50 during the interim. We aren’t inclined to disagree strongly with that diagnosis, but are skeptical of the larger discounts built into the spring and summer contracts, given the market’s recent history of sustained strength during that span of the past three years.
The wholesale market was sending mixed signals at midsession. Choice cutout continued Monday’s rebound from last week’s very weak close, rising another $1.03 to $316.73. The choice-select spread rebounded to $12.79 as select cutout fell $2.29 to $303.94. This suggests grocers are stepping up their purchases of high-quality beef after having stubbornly avoided paying up for that product over the last few weeks. The direction taken by choice cutout over the next few days could go far in indicating overall cattle/beef sector direction in the short run.
Feeder traders are apparently anticipating renewed strength in the cash markets for calves and yearlings. The feeder index for Monday surged $1.81 to $276.23 despite last week’s fed cattle weakness. The sheer strength of the rebounds posted by the nearby contracts at least partially reflects the resulting discounts built into nearby spring feeder futures. But one also has to suspect traders expect more of the same in the days ahead. A tentative report that Mexico had found another screw worm case probably sparked buying as well.
Technical analysis: Bears still own the short-term technical advantage in most-active April live cattle futures. The bulls’ inability to hold support at the contract’s 40-day moving average near $197.29 established that levels as major resistance last week, although the psychological $195.00 level likely represents initial resistance. A push back above those points would re-open the door to a test of the psychological $200.00 level. Today’s low established initial support at $196.70. That’s backed by the contract’s 100- and 200-day moving averages, at $192.28 and $189.42, respectively. A close below the latter would probably signal the long-term cattle market uptrend is over.
Today’s March feeder futures surge clearly has the technical advantage pointing further in favor of the bulls. The bounce from the early low of $266.475 confirmed solid support at the 40-day moving average near $267.10. Look for added support at recent lows congregating in the $263.00 to $265.00 range. Conversely, the coincidence of the daily high and the psychological $270.00 level mark stiffer resistance at the point. Expect added resistance at the contract’s 20-day moving average near $270.53. A bullish breakout above that point would have bulls targeting $275.00.
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 should have all soymeal needs covered in the cash market through March. You are hand-to-mouth on corn-for-feed needs.