Hogs
Price action: December lean hog futures moved to fresh highs Thursday but settled 2.5 cents lower at $77.675.
Fundamental analysis: The lack of significant followthrough to Tuesday’s drop in the hog index probably encouraged buyers in hog futures today, especially in the wake of yesterday’s strong futures rebound. As expected, the CME quoted Tuesday’s hog index as being 23 cents lower at $83.85. It would have been easy to expect a sizeable continuation of that drop, especially in the wake of early-week futures losses and the cash hog market’s history of turning seasonally lower. But Wednesday’s preliminary figure came in just one cent lower at $83.84. Moreover, after having stabilized around $95.00 through the first half of October. And it’s common for pork cutout values to turn downward from mid-October through the end of the year. Thus, having pork cutout rebound $2.23 to $97.08 at midsession today was quite impressive.
The cash hog market sometimes bottoms in the late summer/early fall period, but it’s much more common for it to make fresh lows in December, usually between Christmas and New Years of recent years. Although we believe the recent reductions in hog slaughter from comparable year-ago levels could prove very price supportive if they continue, we would not argue that the market will avoid a drop to lower levels later this year. Conversely, the discount currently built into December futures may have incorporated the probable size of the expected decline.
Technical analysis: Bulls clearly own the short-term technical advantage in December lean hog futures in the wake of Tuesday’s outstanding rebound from 20-day moving average support near $75.50. That represents strong backing for initial support at today’s low of $77.05 and secondary support at the 10-day moving average near $76.68. Expect psychological support at $75.00. However, the bulls’ inability to sustain the push to fresh highs suggests initial resistance at today’s high of $78.425 will prove formidable. Still, a breakout above that point would have bulls targeting the psychologically important $80.00 level.
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: December live cattle fell 42 1/2 cents to $186.175, settling near mid-range after hittng a two-week low. November feeder cattle rose 25 cents to $245.75 and nearer the session low.
Fundamental analysis: The live and feeder cattle futures markets are seeing limited buying interest from the speculators late this week, as their near-term technical postures have deteriorated lately. Conversely, losses in the feeder cattle futures have been limited this week by the downturn in corn futures prices.
Traders are awaiting direction from the cash cattle market. Cash cattle prices have risen five straight weeks amid positive packer margins. There are reports of steady bids in both the southern Plains and northern market late this morning. Some cattle moved at steady prices in the northern dressed market, but southern Plains feedlot operators were passing on steady bids for now.
Today’s noon report showed Choice-grade boxed beef prices firmed another 69 cents to $319.82. Choice beef has surged over $23.00 since late September and is now more than $15.00 above last year at this time. Select-grade at midday was up $1.78 at $294.15. The Choice-Select spread is presently $25.67. Seeing the spread over the past two weeks suggests a shortage of high-quality cattle and beef. Movement at midday was 72 loads.
U.S. economic data Thursday was highlighted by the retail sales and weekly jobless claims reports that were upbeat. These two reports show an improving U.S. economy but are unlikely to change the trajectory of the Fed’s monetary policy that still is leaning toward more interest rate cuts in the coming months. That’s a positive for consumer beef demand at the meat counter.
Technical analysis: The live and feeder cattle futures bulls still have the overall near-term technical advantage but are fading. Five-week-old price uptrends on the daily bar chart are now in serious jeopardy. The next upside price objective for the live cattle bulls is to close December futures above solid resistance at the July high of $190.075. The next downside technical objective for the bears is closing prices below solid technical support at $183.00. First resistance is seen at today’s high of $187.325 and then at last week’s high of $188.55. First support is seen at today’s low of $185.20 and then at $184.00. The next upside price objective for the feeder bulls is to close November futures prices above technical resistance at $255.00. The next downside price objective for the bears is to close prices below solid technical support at $240.00. First resistance is seen at today’s high of $247.40 and then at $249.00. First support is seen at this week’s low of $244.925 and then at $244.00.
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 November. You have all corn-for-feed needs covered in the cash market through October.