Hogs
Price action: Tariff news triggered a big breakdown in hog futures Thursday, with the nearby April contract diving $3.925 to $84.375.
Fundamental analysis: Recent news concerning the cash hog and wholesale pork markets has been supportive. For example, after having fallen rather sharply late last week and again early this week, the CME lean hog index has stabilized. The latest official quote, for Monday is $89.47, down 21 cents from last Friday. Tuesday’s preliminary figure actually rises 2 cents to $89.49, while Wednesday’s data implies that day’s figure at $89.38, down 11 cents. Meanwhile, after having gained 99 cents to $96.66 yesterday, pork cutout edged up another 18 cents to $96.84 at midsession today. The market also got good news on Wednesday’s monthly USDA Cold Storage report, which indicated a surprisingly small rise in January pork inventories.
The heavy selling stemmed from the imposition of U.S. tariffs of 25% that will impact Mexico and Canada on March 4, along with another 10% increase in duties on China. There’s concern about potential retaliatory tariffs and/or sharp reductions in U.S. pork purchases by those countries. Mexico is the largest buyer of U.S. pork, while Canada and China were the No. 4 and No. 5 markets for U.S. pork last year. This suggests potential problems for the market in the coming weeks and months.
Technical analysis: Today’s breakdown clearly flipped the short-term technical advantage in April hog futures to the bears. Expect a band of initial resistance extending from the Jan. 8 low of $84.50 up to subsequent lows at $86.00 and $86.35. Look for added resistance at today’s high of $87.275 and yesterday’s top at $88.60. Today’s low marked initial support at $84.30. Look for added support at mid-October lows around $83.50, then at the Sept. 25 low of $81.45.
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: You have all corn-for-feed needs covered in the cash market through March. You have all soymeal needs covered in the cash market through April.
Cattle
Price action: Cattle futures posted impressive gains Thursday. The expiring February contract rose 57.5 cents to $199.40, while most-active April surged $1.50 to $196.125. March feeder futures jumped $2.075 to $276.45.
Fundamental analysis: Bearish traders’ inability to force a fresh breakdown in cattle futures Wednesday may have provided the basis for Thursday’s rebound. Bears could point out the exchange of a few fed steers in the south (TX-OK and KS) at $197.00 yesterday, which was about $2.00 below last week’s average for the region. If the cash slide occurred in a vacuum, that might have been enough to persuade traders that another general cash market drop was looming. They could also point to the Wednesday afternoon slump in wholesale beef prices. However, producers are probably extremely reluctant to accede to lower bids after having watched cash prices dive about $10.00 over the past four weeks. Moreover, today’s futures action will encourage them to hold firm on steady-higher asking prices for their animals. The cash cattle market’s history of seasonal strength during the March-April period, along with the discounts built into April futures, likely sparked bullish interest as well.
The feeder index fell 71 cents to $278.73 Wednesday afternoon, but that seemingly did little to discourage buyers in feeder futures, as indicated by the substantial daily gains. The sustained cash market premium, as well as the ongoing slide in grain and soy prices, probably encouraged feeder market bulls.
Technical analysis: Today’s price action greatly reduced the bearish short-term technical advantage in April live cattle futures. Indeed, the move probably gave the very-short-term advantage to bulls, since it confirmed solid initial support at the contract’s 10-day moving average near $194.88. The bounce reestablished psychological support at $195.00 as well. Look for backing from recent lows around $193.00, although a drop below the latter level would reopen the door to a test of psychological support at $190.00. Initial resistance at today’s high of $196.40 is backed by the contract’s 20- and 40-day moving averages near $196.81 and $197.96, respectively. Stiff psychological resistance likely rests at $200.00.
Bulls clearly own the short-term technical advantage in March feeder cattle futures, especially after the advance pushed the market above the psychological $275.00 level. Initial support at that point. Is backed by today’s low of $274.35, then by the recent pivot point around $272.50. Expect solid psychological support at $270.00. Today’s high places initial resistance at $277.25, but the breakout will have bulls targeting recent highs just under the psychological $280.00 level.
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 corn-for-feed needs covered in the cash market through March. You have all soymeal needs covered in the cash market through April.