Hogs
Price action: December lean hog futures rocketed $2.475 higher to $77.70, settling near session highs.
Fundamental analysis: Lean hog bulls came back with a vengeance today, negating the last two days of selling pressure. Hog futures rallied despite continued selling pressure in the cattle market, particularly in deferred cattle futures. The market seems to be coming around to the idea that this fall and early winter pig crop and pork production is not going to be as big as originally thought. That has led traders to tightening up December futures to the cash index, implying that the seasonal weakness this year will not be as severe as seen in the cash market the past two years. Futures surged today despite the CME lean hog index dropping 8 cents to $84.08 as of Oct. 14. The preliminary calculation puts the index down another 23 cents to $83.85 tomorrow, which would be a fresh for-the-move low. The index has been relatively sideways for the better part of a month. December futures currently imply the index will fall about $1.00 a week before the contract expires mid-month. Pork cutout continues to pivot near $95.00, climbing 62 cents to $95.02 at midsession today. Strength in ribs and picnics led cutout higher this morning.
Technical analysis: December lean hog futures continue to trend higher with bulls owning the technical advantage. Prices fell just shy of the Oct. 11 for-the-move high of $77.90, which will stand as initial resistance. Further strength faces psychological resistance at $80.00. Prices climbed back above $77.175, marking that as initial support, while additional selling pressure finds strong support at $75.40, the 20-day moving average, which has generally halted all losses since prices closed above it on Aug. 22.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soymeal needs covered in the cash market through November. You have all corn-for-feed needs covered in the cash market through October.
Cattle
Price action: Nearby October live cattle futures ended Wednesday having risen 32.5 cents to $187.05, while most-active December futures edged up 7.5 cents to $186.60. Expiring October feeder futures sagged 42.5 cents to $246.10, but that drop was easily exceeded by the 97.5-cent drop to $245.50 suffered by November feeders.
Fundamental analysis: This week’s early cash and futures developments suggest the cattle and beef complex could decline over the short run. Tuesday’s big futures drop suggested the five-week advance in cash market values will stall or reverse in the days ahead. The fact that last week’s cash gain proved quite modest implied reduced upward momentum and with the futures drop potentially signaling forthcoming cash weakness. Bears might be anticipating a sustained breakdown as seen last fall. Nebraska steer prices hit a secondary 2023 peak at $186.69 during this same week last year. It then declined to $168.62 by mid-December, before turning sharply higher in the new year.
However, the recent surge in Choice beef values, with the rise extending another $1.99 to $318.82 this morning, offers a solid argument against bearish expectations. Having the spread between Choice and Select cutout values virtually double to $27.53 over the past two weeks also offers considerable evidence indicating a shortage of high-quality cattle and beef. In addition, the bears’ inability to sustain the early December futures losses suffered yesterday and today suggests considerable technical and pragmatic support in the market.
Feeder cattle traders are apparently pessimistic about the short-term outlook for yearling cattle. That bearishness is seemingly overdone, given the ongoing fed cattle strength, as well as the fact that the latest quote for the CME feeder index was $249.89, over $3.00 above today’s late quotes in nearby futures. Moreover, the corn and soymeal markets are struggling, implying reduced feed costs and potentially improved replacement demand from feedlot operators.
Technical analysis: Bulls still hold the short-term technical advantage in December live cattle futures, especially after the contract closed higher in the wake of Tuesday’s decline and bears’ attempt to generate a follow-through drop this morning. Today’s low marked initial support at $186.125, with backing from the 20-day moving average, which inched up $185.81 today. Yesterday’s low of $185.55 marks added support, which in turn is backed by the psychological $185.00 level. Expect layered resistance between today’s high of $187.40 and last Friday’s high at $188.55. The $190.00 level likely marks heavy psychological resistance.
One can easily argue that the feeder price action of the past two days has given the bears the short-term technical advantage in November feeder futures. Today’s drop carried the market below its 20-day moving average near $246.45, which now represents initial resistance. That’s backed by the 10-day moving average near $248.69, then by psychological resistance at $250.00 and Monday’s high at $251.25. Psychological support at $245.00 may have played a role in today’s late strength. Expect today’s low of $244.925 to reinforce that psychological level, but a short-term close below that point would probably open the door to a follow-through test of the 40-day moving average near $240.29.
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 November. You have all corn-for-feed needs covered in the cash market through October.