Hogs
Price action: February lean hogs closed up 7 1/2 cents to $81.20, nearer the daily low.
Fundamental analysis: The lean hog futures bulls are working to stabilize their market after seeing three sessions in a row of lower closes. The CME lean hog index and pork cutout value have shown signs of stabilizing. The latest CME lean hog index is up another 21 cents to $81.40. The national direct five-day rolling average cash hog price quote today is $79.34. Today’s noon report showed pork cutout value down 55 cents to $91.76, led by losses in butts and ribs. Movement at midday was 168.60 loads.
Traders will keep a close eye on the CME cash hog index for more confirmation of a seasonal low being in place. History suggests the cash hog and wholesale pork markets will continue firming well into February amid improved demand. Also, hog supplies will likely decline through winter and spring. Retailers and packers will likely continue actively buying hams into March as they build inventories for Easter dinners.
Technical analysis: Lean hog futures 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 the January high of $83.875. 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 today’s high of $82.225 and then at $83.00. First support is seen at last week’s low of $80.85 and then at $80.00.
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: Cattle futures traded mixed-to-lower Tuesday. Nearby February live cattle rose 30 cents to $197.05, while expiring January feeders gained 90 cents to $274.40. But most-active March feeders fell 80 cents to $267.25.
Fundamental analysis: The cattle and feeder complex remains quite strong. The USDA reported Monday that last week’s cash market average reached $203.67, marking a weekly gain of $1.09 as well as a fresh all-time high. The market seems to be struggling to sustain gains after having advanced since November. On the other hand, today’s report concerning Monday’s usually minimal cash action probably favored bulls. That is, 713 head officially changed hands at $201.00 in Kansas yesterday, which essentially matched last week’s state average at $200.88. Given their normal reluctance to pay anything like steady money on Monday, this suggests packers are still having to actively compete for cattle. This seems especially true given the looming release of the monthly USDA Cattle on Feed report Friday afternoon.
Choice cutout did slip 60 cents to $332.56 at midsession, whereas select cutout climbed $1.96 to $321.40. That narrowed the choice-select spread to $11.16. Again, we strongly doubt this reflects an excess of choice-grade beef. Much more likely is the probability grocers have become very resistant to choice beef at such levels and are scrimping by buying select product more actively. This may presage a shift in which they start actively passing along the increased beef costs to consumers, which may ultimately bring about the long-anticipated cyclical price peak at some point this year. Still, the short-term futures outlook still looks promising, due particularly to the sizeable discounts already built into the nearby contracts.
Nearby feeder futures also remain heavily discounted to recent quotes for the feeder index. The latest figure fell $1.25 to $277.06. Thus, today’s January feeder close was priced about $3.00 below the index with expiration coming next Thursday (1/30). March feeders are trading about $10.00 below cash, so even short-term cash market stability could spur a futures advance.
Technical analysis: Bulls still own the short-term technical advantage in February live cattle futures, with bears again failing to force a close below initial support at the 10-day moving average around $196.95. That’s backed by today’s low at $196.375, last Thursday’s low at $195.725, then the psychological $195.00 level. A close below the latter point would have bears targeting the 40-day moving average near $190.78. Today’s high placed initial resistance at $197.675, with backing from last Thursday’s high of $198.525 and the Jan. 10 high of $199.10, as well as the hugely important psychological point at $200.00.
Bulls also hold the advantage in March feeder futures, although bears did prove able to force a close below the 10-day moving average near $267.96, thereby making that point initial resistance. That’s backed by today’s high at $269.90 and the psychological $270.00 level, as well as the Jan. 15 high of $270.175. A breakout above that point would open the door to a test of the $275.00 level. Look for initial support at last Thursday’s low of $265.65 and the psychological $265.00 level. Expect further support at the 20- and 40-day moving averages near $264.32 and $260.25, respectively.
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.