Hogs
Advice: We advise hog producers to exit the 50% first-quarter hedges held in February $84.00 put options. Our exit was $2.90 for a 45-cent loss.
Price action: April lean hog futures climbed 57.5 cents to $87.275 and closed nearer session highs. Nearby February futures inched 27.5 cents higher to $81.475.
Fundamental analysis: Lean hog futures saw modest strength today, though the near-term direction remains indecisive as nearby February traded within Friday’s range again today. Bulls were encouraged by strength in the CME lean hog index, which is up another 6 cents to $81.46 as of Jan. 20. What likely garnered more attention though was the preliminary calculation indicating that the index will be up another 26 cents to $81.72 tomorrow, which would be the second largest daily gain since the index bottomed on Jan. 9. Traders are likely going to keep a close eye on the cash market through the end of this week but recent strength gives additional confidence that a seasonal low is in place. Pork cutout on the other hand pulled back from Monday’s strength once again. Cutout was down another 2 cents at midsession to $90.80, led lower by losses in loins and bellies. Movement remains firm, a sign of continued robust grocer demand. As cattle and beef prices remain at recent highs, consumers have likely been favoring pork at the meat counter. That demand is likely to continue to underpin hog prices in the near term.
Technical analysis: April lean hog futures posted modest gains today after seeing heavy selling pressure the past couple of sessions. Bears continue to maintain a slight technical advantage on the daily bar chart. Bulls were encouraged to see prices bounce off 100-day moving average support at $86.90, which will stand as initial support. Weakness below that mark finds tentative support at $86.00, though bears are ultimately targeting stout support at $85.00. Meanwhile, resistance stands at today’s high of $87.375, which is backed by the 10-day moving average at $88.25.
What to do: Get current with feed coverage.
Hedgers: NEW ADVICE -- Exit the 50% first-quarter hedges held in February $84.00 put options. Our exit was $2.90 for a 45-cent loss.
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: The cattle and beef sector remains strong, with little indicating the larger upward trend will end in the near future. Nearby February live cattle futures surged to fresh for-the-move highs, topping the hugely important $200.00 level before closing $3.00 higher at $200.05. Expiring January feeder futures climbed $2.65 to $277.05, while most-active March soared $5.825 to $273.075.
Fundamental analysis: The cattle and beef markets remained strong at midweek. The USDA reported Tuesday’s cash trading had apparently picked up in the south, with minimal Texas-Oklahoma trading at $201.00, while Kansas trading was more active at a firm average around $201.25. There was no trade in the north, but feedlot operators in that region will be extremely reluctant to take steady bids, much less lower ones, especially after today’s futures surge.
The wholesale market has apparently stalled, with choice beef slipping again at midsession. Choice cutout dipped 19 cents to $331.86, while select cutout dropped $1.11 to $318.44. The choice-select spread widened to $13.42. Again, the narrowed spread almost surely reflects bargain hunting by grocers rather than an increase in supplies or a big reduction in demand by grocers. In fact, one could easily argue they have essentially completed their buying for planned early-February features, so continued short-term slippage through late January wouldn’t be terribly surprising.
A fresh rebound by the CME feeder index, along with the big advance in fed cattle futures, apparently triggered today’s spike in feeder futures. The index rose $1.86 to $278.92 Tuesday afternoon, with the resulting premium over spring futures apparently sparking the huge futures response. Today’s January futures high and close represent new all-time highs.
Technical analysis: Today’s breakout clearly increased the bulls’ short-term technical advantage in nearby February live cattle futures. The daily high around the psychological $200.00 level clearly seemingly violated that level, but it could reemerge as major resistance if bulls can’t mount a followthrough tomorrow. A breakout above that level would have bulls targeting $205.00, then $210.00. The daily low at $197.05 essentially confirmed initial support at the 10-day moving average near $197.36, with that support stretching down to the daily low. However, a drop below that point would open the door for a bearish run at the 40-day moving average near $191.54.
Today’s action strengthened the bullish short-term dominance in March feeder futures. One could argue that the breakout made the Jan. 13 high of $270.05 initial support with the 10-day moving average at $268.46 and the daily low of $267.40, marking secondary and tertiary support, respectively. Look for added support at the 40-day moving average near $260.77. Today’s high marked resistance at $273.675, with strong psychological backing at $275.00. A breakout above that point would have bulls targeting $280.00
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.