Hogs
Price action: April lean hog futures plunged $3.45 before settling at $89.75, near session lows.
Fundamental analysis: Lean hog futures underwent heavy selling pressure today, spurred by recent sharp losses in pork cutout. April futures have struggled to break above recent contract high as prices consolidated the past couple of days. Losses in cutout encouraged sellers today, leading to sharp selling pressure across the board. After climbing above $100.00 last week, cutout has fell over $6.00 from recent highs in the past couple of days. Cutout was down $3.10 to $96.37 at midsession, led by losses in primal bellies, which fell nearly $15. While the downside today can be largely attributed to bellies, losses were widespread yesterday, as all cuts except ribs were down on the day. Weakness in cutout has led to some concerns that the recent seasonal rally could be stalling. Wholesale pork prices have been supporting cash hog prices, key over the coming days will be how the index reacts to lower pork prices. The CME lean hog index is up another 70 cents to $90.19 as of Feb. 17, extending the seasonal rally. The preliminary calculation puts the index up another 79 cents to $90.98 for tomorrow’s quote. The recent sell-off in futures actually puts futures below the index, indicating traders believe cash prices will turn lower at some point.
Technical analysis: April lean hog futures underwent heavy selling pressure today. Since the January low, April lean hogs have faced similar selloffs two other times, each time prices quickly rebounded from the sharp selloff in the succeeding sessions. Key will be tomorrow’s session—if prices continue lower, that would signal that a top is likely in place as the recent uptrend will have been broken. Bears are seeking to break prices below key support at $89.50. Weakness below that mark finds little support until $88.05, which corresponds to the mid-December consolidation zone and the 100-day moving average. Resistance comes in at $90.15, the 40-day moving average, which is reinforced by resistance at $92.00.
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: Expiring February live cattle futures rose 37.5 cents to $197.825, while most-active April advanced 75 cents to $194.775. In contrast, March feeder futures sank 70 cents to $269.025.
Fundamental analysis: The cattle complex reversed Tuesday’s action during Wednesday’s session with nearby fed cattle rising and feeder futures giving back a portion of yesterday’s big gains. Traders still seem uncertain as to the short-term cash market outlook, although the February live cattle contract still implies cash weakness this week and next. Wholesale price action was also mixed at noon, with choice cutout falling $1.76 to $314.01, whereas select cutout edged up 64 cents $304.35. Still, the choice-select spread at $9.66 suggests considerable tightness of short-term supplies of high-quality beef. That’s to be expected, since weekly cattle slaughter traditionally falls to annual lows during the February-March period. Demand from grocers probably isn’t very seasonally strong at this point, especially with Lent looming between early March and mid-April. On the other hand, it will almost surely surge when grilling season arrives.
The big question about this week’s cash action is whether the anticipated drop will match the sizeable losses already implied by nearby futures. It seems somewhat unlikely that cash trading will become active before the monthly USDA Cattle on Feed report is released Friday afternoon. Industry survey results indicate traders expect the February 1 feedlot population to remain about 1% under the year-ago total, with both January placements and marketings seen rising about 2% above comparable year-ago levels. A significant deviation from those figures could affect next Monday’s opening.
As mentioned yesterday, the big feeder futures advance may have reflected preliminary reports of another case of American screw worm infection in Mexico, with traders thinking imports of Mexican feeder cattle could be further curtailed. Today’s drop likely reflected subsequent reports that such a change is not now anticipated. The size of today’s drop was probably limited by the big discounts already built into the nearby contracts. For example, March futures ended the day about $9.00 under the latest quote for the feeder index at $277.99.
Technical analysis: Bears still own the short-term technical advantage in April live cattle futures. Today’s low marked initial support at $193.975, with close backing from Tuesday’s low of $193.025. Again, expect strong support at the contract’s 100- and 200-day moving averages respectively near $192.375 and $189.45. Look for substantial psychological resistance at the $195.00 level, with stiff backing from today’s high at $195.475. Those are backed by the contract’s 10- and 40-day moving averages near $196.45 and $197.45, respectively.
Bulls hold the short-term technical advantage in March feeder futures, although the contract apparently faces considerable resistance between the psychological $270.00 level and the 20-day moving average near $270.61. A breakout above the latter point would have bulls targeting $275.00. Conversely, the 40- and 10-day moving averages define a zone of support between $267.47 and $267.21. That’s backed by psychological support at $265.00, then by recent lows in the $264.00 to $263.00 range.
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.