Hogs
Advice: We advise livestock producers to extend cash soymeal coverage another month through November. We also advise covering corn-for-feed needs in the cash market for the remainder of October.
Price action: December lean hog futures plunged $1.60 to $75.575 and settled nearer session lows.
Fundamental analysis: Lean hog futures, particularly the deferred contracts, underwent heavy selling pressure today as technical resistance ignited profit-taking efforts. Cash fundamentals remain fairly supportive despite the selloff in futures, affirming our inkling that today’s selloff had more to do with technical selling pressure and profit taking than any fundamental shift in the market. In fact, following the recent downturn, the CME lean hog index is actually projected up a quarter to $84.47 tomorrow. The index was quoted down 4 cents to $84.22 as of Oct. 7, but the rebound projected tomorrow has proven recent weakness short-lived. Pork cutout regained most of yesterday’s losses at midsession, climbing 82 cents to $95.63, led higher by bellies as all other cuts posted losses this morning. Movement remains quite robust at 189.58 loads, indicating strong demand under the market. USDA will release their monthly CPI figure tomorrow morning, which will give a look into how grocers priced pork in September. We anticipate steady-lower prices from the prior month, which is likely to keep consumers buying pork at the meat counter, which could accelerate in the month of October.
Technical Analysis: December futures led the hog complex lower today, though prices continue to trend higher on the daily bar chart. Yesterday’s high coincided with uptrend line resistance stemming from the July, September and now October highs. Initial resistance stands at $77.00, which is quickly backed by this week’s for-the-move high of $77.475. The 10-day moving average limited much of the downside today, which stands as initial support at $75.675. Further selling finds support at the psychological $75.00 mark, then $74.60.
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 cash soymeal coverage another month through November. Also cover corn-for-feed needs in the cash market for the remainder of October.
Cattle
Advice: We advise livestock producers to extend cash soymeal coverage another month through November. We also advise covering corn-for-feed needs in the cash market for the remainder of October.
Price action: Cattle and feeder futures set back Wednesday, with nearby October live cattle slipped 27.5 cents to $188.20, while most-active December fell 65 cents to $187.225. Expiring October feeder futures sank $1.05 to $249.275 and November feeders tumbled $1.625 to $248.675.
Fundamental analysis: Cash cattle and wholesale beef prices remain quite supportive of the short-term cattle outlook. Early cash trading Monday and Tuesday began at $187.00, which essentially matched last week’s average. That may signal flat or even weak trading later in the week. But producers will also be aware that the wholesale market is rising once again. The midsession quote for choice beef surged $1.61 to $308.45, which marks its highest level in weeks. This implies grocers continue pursuing beef quite actively.
One might argue that having cattle weights surge to record highs, with the latest reading for steers reaching 948 pounds per dressed carcass, when they normally don’t peak until much later in the year, indicates supplies are backing up in feedlots. Such a scenario could prove very bearish. But it seems clear the industry is tolerating such high weights in order to meet robust demand due to limited fed cattle supplies in feedlots. From a pragmatic standpoint, the recent futures advance has proven quite large with few significant setbacks on the way higher. One couldn’t blame a pragmatic trader for thinking a sizeable short-term decline could soon occur as a consequence.
Meanwhile, feeder cattle supplies are almost surely being supplemented by large numbers of weaned calves coming off farms and into feedlots. Monthly feedlot placements typically surge during late summer and fall, with the October total routinely marking the annual high. The flow of calves onto the market has the potential to undercut yearling prices at this time, which may help explain the relatively weak feeder cattle performance against fed cattle values. The feeder index has moved higher lately, with Monday’s quote (released Tuesday afternoon) rising $1.27 to $248.75.
Technical Analysis: Bulls clearly own the short-term technical advantage in December live cattle futures. Today’s high marked initial resistance at $188.10, with likely resistance at the $189.00 being backed by tough psychological resistance persisting at $190.00. A breakout above that point would have bulls targeting $200.00. Today’s low of $186.60 confirmed recent support in that area. A close below that point would open the door to a quick test of the 10-day moving average near $186.25. If that support failed, a test of the psychological $185.00 level might soon follow. Expect major support between the 40-day moving average near $180.50 and the psychological $180.00 level.
Bulls still hold the short-term technical advantage in November feeder futures as well, although today’s drop pushed initial support down to the daily low of $247.80. That’s closely backed by the 10-day moving average near $247.44. A drop below that point would have bears targeting last week’s low of $243.775, then the 20-day moving average near $243.52. Today’s reversal from the high at $250.80 marked strong resistance at that point, while the drop below $250.00 reestablished initial psychological resistance at that level. A bullish breakout would have bulls targeting $255.00, then $260.00.
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: NEW ADVICE -- Extend cash soymeal coverage another month through November. Also cover corn-for-feed needs in the cash market for the remainder of October.