Hogs
Price action: Hog futures continued their slide Thursday, with nearby April falling $1.225 to $88.525.
Fundamental analysis: The midweek breakdown in pork values continued Thursday, with plunging pork belly prices again dragging cutout lower. Thus, after diving $3.00 Tuesday and $3.95 Wednesday, cutout slid another $1.28 to $94.24 at midsession. Belly prices sank $9.16 to $134.82. That compares to a quote of $177.72 last Friday. This breakdown likely reflects retailers anticipating the looming arrival of Lent on Wednesday, March 5. That is, the price plunge suggests they don’t plan to feature pork, and particularly bacon, very actively during Lent.
The futures breakdown strongly suggests the industry expects the cash market to follow wholesale prices lower. That contrasts to the sustained cash strength seen so far this week. Monday’s official quote for the hog index rose 70 cents to $90.19, with Tuesday’s unofficial quote climbing another 79 cents to $90.98. Wednesday’s data indicates the index will add 24 cents to $91.22. The April contract implies the cash market will have dropped about $3.00 by the time expiration rolls around in mid-April. We tend to think the implied outlook is overly pessimistic, especially if we’re correct in thinking the current breakdown in bacon prices will reignite belly demand by early spring, whereas frozen stocks are limited. Nevertheless, further short-term losses across the complex seem quite probable.
Technical analysis: Bulls likely had a good chance of reversing the late decline, and retaining the short-term technical advantage in April hogs, if they could have sparked a significant rebound today. But the drop and close below what is now initial resistance at the contract’s 40-day moving average near $89.45, shifted the advantage to the bears. Look for added resistance at the psychological $90.00 level, then at the 20- and 10-day moving averages at $90.88 and $92.02, respectively. Look for initial support at the contract’s mid-December lows around $87.50, then at Feb. 3 low of $86.35. Expect psychological support at $85.00.
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: April live cattle fell 97 1/2 cents to $193.80 and nearer the session low. Prices posted a seven-week-low close. March feeder cattle lost $2.20 to $266.825 and nearer the session low.
Fundamental analysis: The live and feeder cattle futures markets today saw selling pressure due in part to keener risk aversion in the general marketplace, as evidenced by a selloff in the U.S. stock indexes.
Cash cattle trade so far this week has been limited and will likely remain that way into Friday afternoon’s USDA cattle-on-feed report. A few head changed hands at $200.00 in Nebraska Wednesday, which strongly suggests a broader decline for the week. A Reuters survey concerning the COF report showed U.S. January cattle placements are seen up 2.2% from last year at the same time.
The noon report today showed Choice-grade boxed beef values fell $1.80 to $312.09, while Select rose 25 cents to $304.01. Wholesale beef prices are likely to face more near-term pressure amid a seasonally weak period for consumer beef demand at the meat counter. Movement at midday was 63 loads and the Choice-Select spread is presently $8.08.
Weekly USDA export sales for U.S. beef will be out Friday morning, delayed one day by the federal holiday on Monday.
Technical analysis: Live cattle futures bears have the near-term technical advantage. Prices are trending down on the daily bar charts. The next upside price objective for the live cattle bulls is to close April futures above solid resistance at $198.00. The next downside technical objective for the bears is closing prices below solid technical support at $190.00. First resistance is seen at this week’s high of $195.475 and then at $197.00. First support is seen at $193.00 and then at $192.00.
The next upside price objective for the feeder bulls is to close March futures prices above technical resistance at $272.50. The next downside price objective for the bears is to close prices below solid technical support at $260.00. First resistance is seen at today’s high of $268.975 and then at this week’s high of $270.825. First support is seen at $265.00 and then the February low of $263.15.
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.