Hogs
Price action: February lean hogs rose 45 cents to $83.625, near mid-range and hit a two-week high.
Fundamental analysis: The lean hog futures market saw more short covering and perceived bargain hunting buying interest from the speculators as it appears more and more likely the futures market has put in a near-term bottom. Cash hog market fundamentals are also improving.
The latest CME lean hog index is up 33 cents to $80.76 as of Jan. 10, halting the recent price decline. Wednesday’s index is projected up another 23 cents to $80.99. The national direct five-day rolling average cash hog price quote today is $78.84. The noon report today showed pork cutout value rose $2.03 to $92.23, led by gains across the board for cuts. Movement at midday was 168.53 loads.
February and April lean hog futures’ premiums to the cash hog index suggest traders sense a seasonal low has been posted and the cash index will rise over the next month, when February hog futures expire. Hog prices have a tendency to rise, seasonally, through the first half of the year, though timing of the seasonal low isn’t always the same. That’s why April is holding an even bigger premium to the cash hog index than February futures.
Technical analysis: A five-week-old downtrend on the daily chart for February lean hog futures has been negated to suggest a near-term market bottom is in place. Bulls and bears are on a level overall near-term technical playing field. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at $86.00. The next downside price objective for the bears is closing prices below solid technical support at the January low of $78.45. First resistance is seen at $84.00 and then at $85.00. First support is seen at this week’s low of $82.425 and then at $81.00.
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: 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: February live cattle futures closed unchanged at $197.40 while deferred contracts saw modest losses. March feeder futures closed 30 cents higher to $268.20 while expiring January futures surged $2.25 to $274.10.
Fundamental analysis: Cattle futures traded on either side of unchanged before closing steady on the day as profit-taking drove trade. After posting another record last week, cash cattle trade got a surprisingly early start to the week. Trade in Iowa/Minnesota took place at $205.50 on Monday, which is nearly $2.50 above last week’s average for the area. A small lot traded hands in Kansas as well at $200.00, steady with last week’s average despite the lot being made up of lower quality animals. That sets the precedent for another week of higher cash trade, despite a large amount of head trading hands last week, with a number of those animals sold “with time.” Packers are thought to be current with supplies, which could lead to delayed negotiations for most of the country, but feed lots are likely to look at early trade to set the tone for the week. Wholesale beef prices were mixed at midsession, with Choice cutout falling 70 cents to $332.65, while Select climbed $1.27 to $318.84. Select continues to show relative strength, tightening the Choice/Select spread to $13.81. Some of that relative strength could be attributed to grocers seeking to purchase cheaper supplies for consumers, as record beef prices are likely to be drawing from demand at the meat counter.
Expiring January feeder cattle futures led the cattle complex higher today as traders shore up discounts to the feeder cattle index. Futures continue to trade at a discount to the cash market as traders seemingly await a downturn following the resumption of feeder cattle imports from Mexico. The lack of weakness in the index, which did most recently fall $1.25 to $277.30, has allowed room for explosive strength as nearby contracts near expiration.
Technical analysis: February live cattle futures continue to consolidate near recent highs. Bulls continue to own the technical advantage. Some additional profit-taking is possible given how steep the recent uptrend has been. Continued selling pressure finds support at $196.625, which is reinforced by the 10-day moving average at $195.45 then the psychological $195.00 mark. Bulls are looking to overcome resistance at $198.325 before tackling last Friday’s for-the-move high of $199.10, which is reinforced by psychological $200.00 resistance.
March feeder cattle futures closed modestly higher today as bulls continue to hold the near-term technical advantage. Bulls are looking to tackle psychological $270.00 resistance before challenging last week’s high of $269.40. Tentative support lies at today’s intraday low of $266.45 while additional selling pressure seeks to overcome the 10-day moving average at $266.05.
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.