Hogs
Price action: Hog futures surged $2.675 to $81.775 Thursday, continuing Wednesday’s rebound from early lows. Nearby February closed $2.675 higher at $82.15.
Fundamental analysis: Although cash hog prices apparently remain under pressure, pork cutout has rebounded from early-week lows.
The CME apparently delayed the release of Tuesday’s official quote for the CME lean hog index, but we see little reason to doubt it will come in at the preliminary figure of $81.05 down 54 cents from Monday’s result at $81.59. The latest USDA data indicates Wednesday’s official quote will drop another 46 cents to $80.59. On the other hand, the wholesale market has moved higher since dipping to $87.83 Monday. It climbed $2.13 to $90.53 yesterday and gained another 13 cents at noon today. We continue thinking persistently robust consumer demand (as long as grocers don’t start actively boosting retail prices) will lend considerable support to the whole complex. Seasonal patterns also tend to point to higher prices in mid-to-late winter. The belated arrival of Easter this year may reduce the intensity of January ham demand from processors and grocers as they start gearing up for supplying holiday dinner entrees once again. Nevertheless, we still think diminishing supplies and firm demand will power a short-term rebound in cash hog prices, which in turn should support futures.
Technical analysis: Today’s action seemed to flip the short-term technical advantage in February hog futures to the bulls. The opening gap reestablished psychological support at the $80.00 level, with the followthrough advance again making the 10-day moving average near $81.36 initial support. A bearish reversal below those support levels would have bears again targeting yesterday’s low of $78.45. Look for initial resistance at the 20-day moving average near $82.84. A push back above that level would open the door to a retest of the 40-day moving average at $84.30, then the psychological $85.00 level.
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: February live cattle rose $3.80 to $197.50, near the session high and hit a 15-month high. March feeder cattle rose $3.80 to $268.775, near the session high and hit a contract high.
Fundamental analysis: Live and feeder cattle futures powered still higher today amid solid cash cattle and boxed beef market fundamentals. USDA reports 876 head of Iowa-southern Minnesota cattle traded at $200.00 Wednesday. That points to more active trade at that level or higher today and/or Friday–at a new record weekly average high price. The noon report today showed wholesale boxed beef values higher again, with Choice grade up $2.21 to $330.82, while Select grade rose $2.48 to $309.37. Movement at midday was 80 loads. The Choice-Select spread is presently $21.45.
Live cattle futures’ discounts to the cash market are likely to continue to support buying interest in futures.
Technical analysis: Live and feeder cattle bulls have the solid near-term technical advantage. Prices are in uptrends on the daily bar charts. The next upside price objective for the live cattle bulls is to close February futures above solid resistance at the contract high of $199.575. The next downside technical objective for the bears is closing prices below solid technical support at $190.00. The next upside price objective for the feeder bulls is to close March futures prices above technical resistance at $275.00. The next downside price objective for the bears is to close prices below solid technical support at $266.00.
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 have all soymeal needs covered in the cash market through mid-February. You are hand-to-mouth on corn-for-feed needs.