Hogs
Advice: We advise livestock producers to cover all corn-for-feed needs in the cash market through March. We also advise extending soymeal coverage another four weeks in the cash market through April.
Price action: April lean hog futures closed $1.725 higher to $88.30 and settled nearer session highs.
Fundamental analysis: Lean hog futures surged on corrective buying today, bouncing from strong support at the early February low. Hog futures remain keyed into the cash market. As pork cutout fell last week, the CME lean hog index followed suit. The index fell 21 cents to $89.47 in Monday’s official quote. Meanwhile, cutout bounced to start the week this week, reflected in the preliminary calculation rising 2 cents for tomorrow’s quote to $89.49. Pork cutout continues to show relative strength, climbing $1.74 to $97.39 at midsession, led by strength in bellies. While prices were strong, movement fell to 121.98 loads. Futures continue to trade well under the cash market, indicating traders anticipate demand will remain poor through Lent. The wholesale pork market will continue to give clues as to whether or not that is the case.
Technical analysis: April lean hogs saw impressive gains today in a flurry of buying off the early February lows, though bears continue to hold the technical advantage. Very little technical resistance stands until the 10-day moving average at $89.15, which is backed by the 40-day moving average at $89.50, then the psychological $90.00 level. Resurgent selling pressure has bulls seeking to hold prices above support at $88.00, the 100-day moving average, which is backed by support at $86.70, then the Feb. 3 low of $86.35
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: NEW ADVICE -- Cover all corn-for-feed needs in the cash market through March. Also extend soymeal coverage another four weeks in the cash market through April.
Cattle
Advice: We advise livestock producers to cover all corn-for-feed needs in the cash market through March. We also advise extending soymeal coverage another four weeks in the cash market through April.
Price action: Cattle futures came under fresh pressure Wednesday. The expiring February live cattle contract fell 67.5 cents to $198.825, while most-active April dropped $1.10 to $194.625. March feeder futures inched up 15 cents to $274.375, while the deferred contracts posted losses.
Fundamental analysis: Today’s price action indicated traders expect continued short-term weakness in the cash market for fed cattle. That was illustrated by the February contract, which expires at noon Friday (2/28), closing at an approximate $1.00 discount to last week’s cash average at $199.64. That implies traders expect the cash market to fall another $1.00 this week, thereby continuing the breakdown begun early this month. In addition, having the April contract trading about $4.00 under February indicates bearish expectations, especially when that is compared to the cash market’s historical penchant for early-spring strength and the resulting tendency for April futures to trade several dollars premium to February.
We tend to think this bearishness is overdone, although the lateness of Easter this year might be at least partially responsible for the indicated pessimism, with traders possibly thinking the extreme lateness of Easter will put a big damper on early-spring grilling season demand. On the other hand, after having fallen to the $310.00 area last Friday, choice cutout has firmed this week, adding 18 cents to reach at $314.50 at midsession today. Having the choice-select spread widen back out to the $10.74 level also implies improved firmness in the market for high-quality beef. And while cattle slaughter tends to increase from annual lows in the February-March period as spring passes, we are not expecting a big supply surge in the coming weeks.
Slipping grain and soy prices have probably lent support to the feeder market lately, but we would also point to the discounts still built into the nearby contracts. For example, the feeder index rose 7 cents to $279.40 when published Tuesday afternoon, so today’s close left the March contract about $5.00 discount to the cash equivalent price with expiration coming in four weeks’ time.
Technical analysis: Today’s action kept the bear’s short-term technical advantage in April live cattle futures intact, but they were unable to force a close significantly below the contract’s 10-day moving average near $194.85. Initial resistance at today’s high at $195.95 is reinforced by Tuesday’s high at $196.325. A breakout above the latter point would have bulls again targeting the psychological $200.00 level. One can argue the 10-day moving average marks initial support. Today’s low marked added support at $194.30. Look for layered support between that point and the Feb. 18 low of $193.025. A drop below that point would open the door to a test of the psychological $190.00 level.
Bulls hold the short-term technical advantage in March feeder cattle futures. Today’s low placed initial support at $273.075, with added support likely marked by Monday’s high at $272.90. Look for strong support extending from the psychological $270.00 level down to the confluence of the contract’s 10-, 20- and 40-day moving averages in the $269.52 to $269.18 range. Today’s action confirmed initial resistance at the psychologically important $275.00 level, with stiff backing around Tuesday’s high of $275.58. A close above that point would have bulls targeting the S280.00 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: NEW ADVICE -- Cover all corn-for-feed needs in the cash market through March. Also extend soymeal coverage another four weeks in the cash market through April.