Hogs
Price action: October lean hogs rose $1.175 to $84.675, while the higher volume December contract rallied $2.150 to $76.75.
Fundamental analysis: Lean hogs edged higher for the fourth straight session today, with nearby October gapping higher at the open and rising to the highest intraday level since May 20. The recent decline in the CME cash index has seemingly come to a screeching halt, with preliminary figures suggesting a 32-cent increase to $84.45 for Tuesday’s quote, while traders pushed the nearby future to a slight premium over the cash equivalent. Wholesale strength is also underpinning pork, with the noon report showing a 47-cent gain to $96.31. Wholesale strength will likely persist over the coming 2-3 weeks as October serves as National Pork Month, which will likely find grocers featuring more pork deals at the meat counter.
Strength in cattle and feeder futures likely spurred some additional buying in lean hog futures as the session progressed, with the livestock complex showing strong buying interest despite recent rumors the current port strikes occurring along the east and gulf coasts could disrupt meat exports should it persist. However, reports have indicated that the Port of Long Beach, the second-busiest maritime hub in the U.S., is prepared to handle more cargo diverted from the East and Gulf Coast ports, probably eased broad concerns.
Technical analysis: October lean hogs ended the session above former resistance at $84.025 and $84.550 for the first time since mid-May, with bulls improving their technical posture. Initial resistance is now likely to emerge at $85.325, while support will be layered from today’s failed resistance levels at the 10-, 200-, and 20-day moving averages of $82.64, $81.49 and $81.24.
What to do: Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soymeal needs.
Cattle
Price action: The cattle complex surged higher again Wednesday. Nearby October live cattle jumped $2.95 to $187.425, while most-active December surged $2.525 to $187.70. Expiring October feeder futures leapt $3.575 to $249.725, while the November contract soared $3.875 to $248.55.
Fundamental analysis: There has been little news of any cash trading of fed cattle so far this week, with USDA reporting only a small lot of Iowa heifers changing hands at $185.00 Tuesday. But that apparently did little to discourage bulls in the futures markets, likely due to reports that producers were holding firm at $187.00 asking prices today. Indeed, the big futures gains will probably cause them to stand even firmer on their asking prices or raise them.
Packers do have incentives for boosting their bids, since choice beef cutout surged back above $300.00 Tuesday afternoon, then rose another 8 cents to $300.25 at midsession today. Select cutout has exhibited much less strength, having fallen to $283.73 at noon. The resulting choice-select spread at $16.52 is actually a bit wider than the 10-year average of $15.05 for the first week of October. That comes despite steer dressed weights having jumped to an all-time record of 945 pounds/head in mid-September. The underlying implication is that consumer beef demand remains robust, which seems likely to continue supporting the complex for the foreseeable future.
The CME feeder index rose $1.71 to $247.24 Tuesday afternoon, so today’s advance put the nearby contracts at modest premiums to cash. This implies renewed short-term optimism on the part of traders. Technicals also seem to favor bulls.
Technical analysis: Bulls clearly hold the short-term technical advantage after today’s December futures advance. Indeed, one could argue that today’s surge marked the start of fresh leg higher after having completed a rising bull flag formation over the past week. Tuesday’s high of $186.075 likely marks initial support, with backing from today’s low of $185.025, which likely represents the onset of psychological support at $185.00. A quick reversal below that point would have bears targeting the $180.00 level once again. Today’s high of $187.75 represents initial resistance, but that may do little to deter bulls from further buying since today’s breakout opened the door to a retest of midsummer highs in the $189.00-$190.00 range.
Today’s November feeder futures’ rally also appeared to open the door to followthrough gains. Expect initial resistance at today’s high of $248.70, with a push above that point likely having bulls targeting the psychologically important $250.00 level. A close above that level would have bulls focusing on July lows around $254.00. Look for initial support at last Friday’s high of $247.00, with secondary support likely at the psychological $245.00 level. Expect tertiary support at today’s low of $244.425, which is reinforced by the 10-day moving average at $244.20.
What to do: Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soymeal needs.