Hogs
Advice: We advise livestock producers to extend meal coverage by two weeks in the cash market through the end of February.
Price action: February lean hog futures led the complex higher, closing 62.5 cents higher to $83.175.
Fundamental analysis: Lean hog futures worked higher for the fourth consecutive session as cash fundamentals turn more supportive. Recent strength in pork led traders to believe a rebound in the cash index was likely at hand last week, which spurred corrective buying efforts. The CME lean hog index is down another 16 cents to $80.43 as of Jan. 9, the lowest level since the beginning of March. Meanwhile, the preliminary calculation actually puts the index up 33 cents to $80.76 tomorrow. That led nearby futures even higher today as traders are anticipating a potential seasonal low. Traders are likely to keep a close eye on the cash market in the coming days, as any resurgent weakness could spur selling pressure as February futures have quickly built premiums to the cash market in the rally over the past week.
Pork cutout led the turnaround in the cash market over the past week. Cutout is up another $1.47 at midsession, led by strength in hams and ribs. Notably, movement rebounded from a relatively low figure on Friday. At midsession, movement totaled 153.65 loads, indicating continued robust grocer demand for pork. Record cattle prices and record high beef prices for this time of year likely has consumers looking for alternatives at the meat counter, which has likely benefited wholesale pork demand in recent weeks.
Technical analysis: February lean hog futures worked higher for the fourth consecutive session, though bears continue to maintain a slight technical advantage as prices trend lower from the November high. Bulls tried and failed to overcome downtrend resistance at $83.60 today. Strength above that mark eyes resistance at $85.00. Tentative support stems from the 20-day moving average at $82.50, which is reinforced by support at $81.75.
What to do: Get current with feed coverage.
Hedgers: You have 50% of first-quarter production hedged in February $84.00 puts at $3.35.
Feed needs: NEW ADVICE -- Extend meal coverage by two weeks in the cash market through the end of February. You are hand-to-mouth on corn-for-feed needs.
Cattle
Advice: We advise livestock producers to extend meal coverage by two weeks in the cash market through the end of February.
Price action: February live cattle fell $1.375 to $197.40, near the session low after hitting a 15-month high Friday. March feeder cattle lost $1.50 to $267.90, near the session low after hitting a contract high Friday.
Fundamental analysis: The cattle futures markets today saw some routine profit-taking pressure following recent gains. However, losses to start the trading week were somewhat limited by still-strong cash cattle and beef market fundamentals. February live cattle futures had become short-term technically overbought but continue to trade under the cash cattle market. That should limit stronger selling interest in live cattle futures.
USDA today reported the average cash cattle trading price last week reached another record high, up $3.65 at $202.58. We look for steady-higher cash cattle trade again this week. The noon report today showed wholesale boxed beef values mixed, with Choice grade down 52 cents at $332.32 and Select grade up $2.96 to $317.10. Movement at midday was 62 loads and the Choice-Select spread narrowed to $15.22. While beef packer margins remain in the red, surging wholesale boxed beef prices have improved margins and kept packers actively bidding up for cash cattle.
The feeder cattle futures are seeing some selling interest increase amid the solid rally in the corn futures market that saw March corn today hit a seven-month high.
World Weather Inc. today said that in the northern Plains “periods of arctic air in the next two weeks will likely cause more livestock stress.”
Technical analysis: Live and feeder cattle futures bulls have the solid near-term technical advantage. Prices are in a two-month-old uptrends on the daily bar charts. The next upside price objective for the live cattle bulls is to close February futures above solid resistance at the contract high of $199.575. The next downside technical objective for the bears is closing prices below solid technical support at $193.00. First resistance is seen at last week’s high of $199.10 and then at $199.575. First support is seen at $197.00 and then at $195.00. The next upside price objective for the feeder bulls is to close March futures prices above technical resistance at $275.00. The next downside price objective for the bears is to close prices below solid technical support at $263.00. First resistance is seen at today’s high of $270.05 and then at the contract high of $271.00. First support is seen at Friday’s low of $266.775 and then at $265.00.
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: NEW ADVICE -- Extend meal coverage by two weeks in the cash market through the end of February. You are hand-to-mouth on corn-for-feed needs.