Hogs
Price action: February lean hog futures climbed 30 cents to $79.475 while deferred contracts posted losses.
Fundamental analysis: Nearby lean hog futures marked a fresh for-the-move low early in the session before reversing and closing mid-range. Oversold technical conditions limited selling pressure today, as did strength in the wholesale pork market, which rebounded $3.43 to $91.83 this morning. All cuts posted gains at midsession, with hams and bellies leading the way higher. Movement remains strong at 243.88 loads, indicating continued robust grocer demand for pork. That has likely limited some of the weakness in the CME lean hog index the past few days. The CME lean hog index fell another 42 cents to $81.59 as of Jan. 6. The preliminary calculation puts the index down another 54 cents to $81.05 tomorrow, which would be the eighth consecutive daily decline. While the index is making new lows, daily drops are less than what was seen late last week and earlier this week, which is likely encouraging traders to narrow up discounts to the cash market, which shrank to $1.575 as of today’s close.
Technical analysis: February lean hog futures forged a fresh low before reversing higher today. Bears continue to maintain the technical advantage. Bulls initial target is closing prices above psychological $80.00 resistance, which is backed by $80.65 resistance, then the 10-day moving average of $81.20. Bulls are seeking to hold tentative support at $79.175, else a trip to the recent for-the-move low at $78.45 seems likely. Continued selling finds solid support at $77.375.
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 have all soymeal needs covered in the cash market through mid-February. You are hand-to-mouth on corn-for-feed needs.
Cattle
Price action: Cattle futures set back in the wake of recent gains. Nearby February live cattle ended Wednesday at $193.70, down $1.875, while most-active March feeder futures dove $2.825 to $265.575.
Fundamental analysis: The cash cattle and wholesale beef markets remained extremely strong Wednesday, although cash trading has yet to break loose, as is usual. After having reported light Iowa-southern Minnesota trading at $200.00 Monday, USDA reported this morning that a few head had traded at $197.50 Tuesday. When combined with Tuesday’s closing beef quotes with Choice cutout having fallen $1.31 to $325.79 (after having been reported at $327.66 at noon), that may have played a role in the reversal suffered by cattle and feeder futures. However, cutout had rebounded at midsession; Choice cutout was stated at $327.38, up $1.59 and Select cutout rose 97 cents to $306.40. The Choice/Select spread remained around $21.00, which, while down sharply from two weeks ago, is still about $10.00 over the historical norm for early January. The narrowing spread implies grocers are shifting their focus to cheaper select cuts, whereas the elevated levels for both indicate beef supplies remain extraordinarily tight. Still, given recent futures gains, a short-term setback from overbought conditions isn’t terribly surprising. On the other hand, cash prices in the $197.50 to $200.00 range suggest discounted February futures have limited downside potential, especially when one considers ongoing Plains storms and the cattle market’s historical tendency for first-quarter gains.
Feeder futures seemingly paid little attention to Wednesday’s grain and soy sector weakness, with traders also reacting to overbought conditions. Cold, wet feedlots also tend to discourage their managers from aggressively pursuing replacement yearlings. Nevertheless, the discounts now built into the nearby contracts versus the latest quote for the feeder index at $272.29, also suggest limited potential for a sustained followthrough to the downside.
Technical analysis: Bulls still hold the technical advantage in February live cattle futures, but today’s drop may favor bears over the next few days. Today’s high at $196.35 confirmed solid resistance between that point and yesterday’s high at $196.625. The breakdown probably leaves the $195.00 level as psychological resistance. A breakout above Tuesday’s high would have bulls targeting the $200.00 level. Today’s low marked initial support at$193.475. Look for added support at the Dec. 16 high of $193.225, then at the 10-day moving average near $192.21. A drop below that point would open the door to a retest of the $190.00 level.
Bulls still hold the overall short-term technical advantage in March feeder futures after bears proved unable to sustain pressure at the daily low of $263.625. That’s backed by the contract’s 10-day moving average near $262.78, then the Dec. 12 high of $260.70 and the psychological $260.00 level. Initial resistance is likely at the psychological $265.00 level, with much stiffer resistance looming between today’s high of $268.65 and Tuesday’s top at $268.775.
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 have all soymeal needs covered in the cash market through mid-February. You are hand-to-mouth on corn-for-feed needs.