Hogs
Price action: April lean hog futures surged $1.80 to $91.55 and closed near session highs. Nearby February futures closed $1.575 higher to $86.65.
Fundamental analysis: Lean hog futures surged again today, continuing the trend of recent volatility as prices again near recent highs. Traders continue to be encouraged by persistent strength in the CME lean hog index, which continues to push higher. The index is up another 31 cents to $84.08 as of Feb. 3, extending its rise from the early January seasonal low. The preliminary calculation puts the index up another 52 cents to $84.60, which would be the largest daily gain since Dec. 20. Bulls have recently been encouraged by decreased hog slaughter, drawing question as to whether the hog population is as big as previously anticipated. If hog supplies are shorter than thought, it puts the market in a precarious position as pork demand has picked up. That could partially explain the strength recently seen in futures. Still, ongoing volatility across the futures curve leads one to believe an eventual breakout in either direction will lead to a significant push higher or lower, but the direction still seems up to question. After slipping last week, wholesale pork demand has rebounded, with movement topping 340.0 loads the past two days. Movement at midsession totaling 204.84 loads looks to continue that trend. Cutout fell 47 cents to $94.29 this morning, led lower by losses in loins.
Technical analysis: April lean hog futures built on Tuesday’s strength and are nearing last week’s highs. Neither bulls nor bears own the technical advantage as volatile sideways price action continues to plague the market. Bulls are seeking to overcome last week’s for-the-move high close of $91.925 before tackling resistance at $92.75. Resurgent selling pressure has bulls seeking to hold support at $91.025. A break below that mark targets support at $90.525, which is backed by the 10-day moving average at $89.75.
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 the end of February. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: Cattle futures rebounded strongly from recent losses, with expiring February live cattle jumping $1.725 to $203.60 and most-active April leaping $2.65 to $201.30. March feeder futures surged $2.475 to $270.725.
Fundamental analysis: Cattle fundamentals remain very supportive, although this week’s early futures weakness suggesting traders are anticipating the long-awaited bearish setback in cash and wholesale prices. Bears are probably looking for big downside losses, while bulls are surely unconvinced on that score. The fact that last week’s slight cash market advance marked a big departure from the upward leaps posted the two weeks prior is playing a sizeable role in those expectations.
We are inclined to agree with the bulls at this juncture, although the latest wholesale market news isn’t especially supportive. That is, choice cutout had surged back above $330.00 Monday, but today’s midsession quote reflected a dive of $4.59 to $326.14. Select cutout fell $2.21 to $315.20, with the choice-select spread falling to $10.94. That’s down dramatically from early-January levels, but it’s still several dollars wider than the 10-year average for this time of year. Still, the early days of most months usually see grocers buying beef actively for planned features over the first weekend of the month following (when consumers paid monthly or twice-monthly are most likely to have full wallets). Thus, today’s dive in choice beef values raises questions about short-term prospects for the cattle/beef complex.
Meanwhile, after having surged to an all-time high at $281.07 late last week, the feeder index (for Monday) fell $1.62 to $279.45 when it was published yesterday. We view the results of last Friday’s USDA Cattle report as very supportive of the yearling and calf outlook, since the numbers suggested the supply of “young stuff” will remain cyclically tight through this year and into next. On the other hand, today’s weakness in corn and soymeal futures probably amplified the feeder gains.
Technical analysis: Although the larger technical situation seemingly remains bullish, bears may hold the short-term technical advantage in April live cattle futures. Today’s strong rebound above the contract’s 20-day moving average near $200.25 made that level, as well as the hugely important (psychologically) $200.00 level, initial support. That’s backed by today’s low of $198.90 and yesterday’s low of $197.40, then by the 40-day moving average near $196.36. Today’s high marked initial resistance at $201.975, with stiff backing from the 10-day moving average near $202.38. A breakout above the latter would have bulls targeting the psychological $205.00 level, then the Jan. 28 high of $207.725.
The short-term technical situation in March feeder futures still seems to favor bulls despite recent losses, since bears couldn’t force a move below early-to-mid-January lows just above the $265.00 level. Expect initial support at today’s and yesterday’s lows of $267.55 and $267.175, respectively, with strong backing in the $265.00 area, as well as at the contract’s 40-day moving average near $265.31. Initial resistance at the contract’s 20-day moving average near $271.15 was essentially confirmed by today’s high of $271.50. The 10-day moving average marks stiffer resistance near $273.82. That’s backed by the Jan. 31 high of $277.15, then last week’s high of $279.825 and the psychological $280.00 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 the end of February. You are hand-to-mouth on corn-for-feed needs.