Hogs
Price action: February lean hog futures closed 50 cents lower to $83.125 and nearer session lows.
Fundamental analysis: Nearby lean hog futures saw profit-taking today, shoring up premiums to the cash market, though deferred contracts posted modest gains. Resurgent strength in the cash market has spurred recent strength in futures. The CME lean hog index is up 23 cents to $80.99 as of Jan. 13, the second straight daily gain. The preliminary calculation puts the index up another 11 cents to $81.10. That put February futures about $2.00 above the index as of today’s close. Premiums to the index, which continues to post small daily changes on low movement, likely spurred profit-taking efforts today after a five-day string of gains that pushed futures over $5.00 higher off last week’s low. Meanwhile, strength in wholesale pork prices could continue to support the cash market. Pork cutout climbed 91 cents to $91.12 at midsession, led by strength in ribs and hams. Grocer demand for pork remains impressive, as noted by movement totaling 195.97 loads this morning. Increased retailer prices for beef are likely driving additional consumers to purchase pork as participants in the beef supply chain are having to increase prices due to record cattle prices.
Technical analysis: February lean hog futures saw modest selling pressure today. Bears retain a slight technical advantage, but the recent rally has weakened their hold. Additional selling pressure finds tentative support at $83.00 while additional selling targets support at $82.30 then $81.25. Bulls are looking to overcome initial resistance at yesterday’s close of $83.625 before tackling resistance at $84.375 then the psychological $85.00 mark.
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: Anticipation of continued cash and wholesale strength seemed to power fresh cattle and feeder gains Wednesday. Nearby February live cattle rose $1.125 to $198.525, while most-active March feeder futures climbed $1.60 to $269.80. Expiring January feeder futures rallied $1.125 to $275.225.
Fundamental analysis: Early-week cash and wholesale market activity seemingly points to another rise in the cash average for this week. USDA’s Tuesday report indicated about 550 head had traded at $205.50 in the Iowa-southern Minnesota region Monday, while approximately 200 head traded at $200.00 in Kansas. This morning’s report stated 700 head of IA.-so. MN cattle changed hands at $205.37 yesterday. Anecdotal reports indicated other animals had traded similarly. Meanwhile, choice beef cutout climbed another $1.43 to a fresh (and all-time) winter high of $334.41 at noon today. But after having risen strongly versus choice lately, select beef cutout dipped 45 cents to $317.26. That put the choice-select spread at $17.15 after it had fallen to just $14.27 at Tuesday’s close. The sharp narrowing of the spread from over $30.00 a couple of weeks ago almost surely reflects increasing retailer resistance to surging choice beef costs rather than a significant or comparative increase in choice beef supplies (versus select). We still regard the prospect of grocers actively passing on rising wholesale costs to consumers via surging retail prices as the biggest danger to the cattle/feeder outlook. But that’s probably not going to happen before midwinter.
The feeder index was stated at $278.31 Tuesday afternoon, up $1.01 from previous. This also reflects an all-time high. And while the ongoing corn rally could limit optimism about the feeder outlook, due to the prospect of rising feed costs, there’s little to indicate the feeder market is set to top. That’s especially true when one considers the strong possibility ranchers holding back heifers to rebuild herds will further reduce the supply of yearlings available to feedlots this year.
Technical analysis: Bulls clearly own the short-term technical advantage in February live cattle futures. Today’s high marked initial resistance at $198.85. That’s closely backed by last Friday’s top at $199.10, then by the psychological $200.00 level. A move above that point would have bulls targeting $205.00, then $210.00. Today’s low established fresh support at $198.225. That’s backed by yesterday’s low of $196.435, with psychological support likely at $195.00. A drop below that point would reopen the door to a test of the 40-day moving average near $190.50, then the psychological $190.00 level.
Bulls also hold the short-term technical advantage in March feeder futures, especially after bears couldn’t mount another challenge of the contract’s 10-day moving average (now near $267.25) today. That serves as quick backing for initial support at today’s low of$267.85. A close below the former point would have bears targeting the 20-day moving average at $262.67, the psychological $260.00 level, then the 40-day moving average near $258.95. Today’s strong close suggests psychological resistance at $270.00 will prove tentative, although it’s reinforced by the daily high at $270.175. A breakout above that point will have bulls targeting $275.00.
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: 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.