Hogs
Advice: We advise livestock producers to extend corn-for-feed coverage another month in the cash market through November.
Price action: Hog futures continued marching higher Wednesday, with December futures surging $1.05 to $80.175.
Fundamental analysis: With hog numbers continuing to fall far short of USDA forecasts for a 3.5% to 5% rise in hog supplies through the September-November period, as exemplified by slaughter totals falling below year-ago levels in four of the past five weeks, hog traders continued buying futures aggressively Wednesday. The CME confirmed the hog index for Monday at $84.34 this morning, with the latest USDA data indicating it will likely rise another 32 cents to $84.66 when Tuesday’s official quote is released tomorrow. And while pork cutout dipped 97 cents to $97.27 Tuesday afternoon, it rebounded $1.13 to $98.40 this morning.
The surprising shortage, by seasonal standards and especially when compared to the totals implied by the USDA, of hogs available for slaughter is almost surely playing a big role in the ongoing futures advance. Strong consumer demand is likely playing a significant role in the gains as well. Bulls can also point to the ongoing surge in wholesale beef values, as exemplified by choice beef cutout at record highs for this time of year, and those for fed cattle are probably spurring substitution demand for hogs and pork as well. It would be easy to argue the rally is overdone, but the ongoing cash market advance is keeping futures at a moderate discount. Seasonal weakness might reemerge at any time, especially if hog supplies increase significantly in the near future, so we recommend be prepared to institute at least partial hedges of late fall and winter marketings.
Technical analysis: Today’s advance clearly indicates bulls remain in command of the short-term technical advantage, evidenced by their push above $80.00 at the close. Today’s low marks initial support at $78.875, with backing from last week’s late highs in the $78.40 area. The 10-day moving average likely represents additional support near $77.18.
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: NEW ADVICE -- Extend corn-for-feed coverage another month in the cash market through November. You should also have all soymeal needs covered in the cash market through November.
Cattle
Advice: We advise livestock producers to extend corn-for-feed coverage another month in the cash market through November.
Price action: Feeder market losses seemed to drag fed cattle futures lower Wednesday. Expiring October live cattle futures dropped 42.5 cents to $187.625, while most-active December slid 25 cents to $187.875. November feeder futures tumbled $1.70 to $247.225, while the expiring October contrast slid 85 cents to $248.575.
Fundamental analysis: The wholesale beef market continued its upward march at noon today, with choice cutout inching up 8 cents to $324.04 and select cutout gained $1.37 to $296.17. The choice beef quote represents a record high for this time of year, although it’s still a good bit below its summer 2024 high and far below the peaks posted the past few years. Having the choice-select spread, now at $27.87, running about $10.00 above the seasonal norm also implies a shortage of high-quality beef despite the extreme weights steers have reached lately.
Surging wholesale prices and profitable packer margins suggest they’ll continue bidding actively for fed cattle this week, although the ongoing cash market advance has apparently lost upward momentum. Whether it can be sustained over the short run is open to question. Climbing wholesale prices also raise the possibility of grocers passing the increased cost on to consumers, which in turn might stifle demand, especially with the holiday turkey/ham season approaching quickly. Thus, a short-term setback can’t be ruled out.
Bears are rather obviously anticipating short-term feeder market weakness. That is, the latest quote for the CME feeder index rose 39 cents to $250.65 Tuesday afternoon, so today’s drop put the nearby contract about $2.00 discount with expiration looming next Thursday (Oct. 31). We would also remind readers the November feeder contract expires earlier than the others due to the Thanksgiving holiday. It goes off the board on Nov. 21. Today’s feeder losses very likely reflect the recent corn market surge, with six straight daily export sales announcements advertising the ongoing demand response to recent low prices. Rising feed costs translate into diminished feedlot demand for replacement yearlings.
Technical analysis: Bulls still own the short-term technical advantage in December live cattle futures, although today’s setback from early highs weakened their position. Expect initial resistance at Tuesday’s high of $188.475, with close backing from today’s high at $188.975. A breakout above that point would probably face stiff psychological resistance at the $190.00 level. The 10-day moving average near $187.33 marks initial support. That’s strongly backed by today’s low of $187.125, with pivotal support expected at the 20-day moving average near $186.79. A drop below that point would have bears targeting the 40-day moving average near $183.00.
Bulls still own the short-term technical advantage in November feeder futures as well, but their hold is much more tentative after they proved unable to sustain Tuesday’s close above the area between the contract’s 10- and 20-day moving averages near $247.77 and $247.60, respectively. The settlement below that zone suggests they’ll now act as initial resistance, but selling would likely be cautious. Today’s high marked significant resistance at $249.40, with psychological resistance looming at the $250.00 level. Today’s low placed initial support at $246.65. Bulls can probably expect solid psychological support at $245.00, but a drop below that point could open the door to a test of the 40-day moving average near $242.10.
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: NEW ADVICE -- Extend corn-for-feed coverage another month in the cash market through November. You should also have all soymeal needs covered in the cash market through November.