Hogs
Price action: February lean hogs rose $2.35 to $88.275, near the daily high and hit a contract high.
Fundamental analysis: The lean hog futures market saw technical buying from the speculators featured today, as February futures saw a bullish upside “breakout” from the recent sideways trading range at higher price levels.
Cash market fundamentals have weakened a bit on this Thanksgiving-holiday-shortened trading week. The latest CME lean hog index is down 55 cents at $86.46. Wednesday’s cash hog index is projected down another 56 cents at $85.90, the lowest quote since Oct. 28. The national direct five-day rolling average cash hog quote today is $86.09. The noon report showed pork cutout value fell $1.54 to $91.79 on losses in most cuts. Movement at midday was 199.8 loads.
USDA’s latest cold storage report showed pork stocks totaled 426.0 million lbs., down 32.4 million lbs. from the previous month. That’s nearly double the five-year average decline of 16.8 million lbs. during the month. Pork inventories fell 11.9 million lbs. (2.7%) from year-ago and 63.8 million lbs. (13.0%) from the five-year average.
Technical analysis: The lean hog futures bulls have the solid overall near-term technical advantage. A three-month-old price uptrend is in place on the daily bar chart. The next upside price objective for the hog bulls is to close February prices above solid chart resistance at $90.00. The next downside price objective for the bears is closing prices below solid technical support at the November low of $82.10. First resistance is seen at $88.00 and then at $89.00. First support is seen at $86.00 and then at this week’s low of $85.10.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: You have 50% of fourth-quarter production hedged in December $84.00 put options at $2.075 and 50% of first-quarter production hedged in February $84.00 puts at $3.35.
Feed needs: You have all soymeal needs in the cash market through the third week of January. You should also have all corn-for-feed needs covered in the cash market through mid-December.
Cattle
Price action: December live cattle futures climbed 40 cents to $186.90 but closed nearer session lows. January feeder cattle futures surged $2.625 to $258.10, settling nearer session highs.
Fundamental analysis: Feeder futures continue to show impressive strength though fats have struggled to reciprocate. News of the New World Screwworm (NWS) in Mexico continues to marinate in the marketplace with uncertainty regarding how long feeder imports will be suspended. Mexico accounts for around 5% of feeder placements in the U.S. With the cattle herd at generational lows, any small blip in supply can have lasting impacts on the cattle market. While fats have shown little spillover strength thus far, any extension of the current two-week import ban from Mexico could quickly spur strength in deferred cattle futures.
Cash cattle trade got an early start to the week in Iowa, with 657 head trading hands at $187.87, about $1.50 higher than last week’s average for the area. Higher cash cattle prices have been supportive for futures, but given current packer margins, it is unsure how much packers will be willing to pay up for supplies, especially considering fresh contracted supplies will become available next week. Wholesale beef did climb this morning, providing at least a boost to packer margins in the near term. Choice cutout was up $3.85 to $313.56 while Select climbed $4.37 to $278.11.
Technical analysis: December live cattle futures closed modestly higher on the day as bulls retain a slight technical advantage. Initial resistance stems from $187.225, which is backed by yesterday’s high of $188.45 then $189.25, the Oct. 24 close. Resurgent selling pressure finds support at $186.50, with significant backing from the 10-day moving average at $185.85.
January feeder cattle futures continue to show relative strength as bulls maintain full control of the technical advantage. Additional strength targets yesterday’s high of $259.525, which is reinforced by resistance at $261.325. Profit-taking finds support at $255.00, $251.30, then 10-day moving average at $252.20.
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 in the cash market through the third week of January. You should also have all corn-for-feed needs covered in the cash market through mid-December.