Hog market looks toppy, cattle market choppy, analyst says
While the lean hog market will need more bullish export news to hold its rally, the cattle market leans on demand.
The cattle market continues to see choppy and consolidation-type trade, with the futures holding a premium to the cash market.
Traders remain optimistic that holiday demand for beef will remain very strong, but with virus issues continuing, that demand is still in question.
February Live Cattle futures contracts closed slightly higher on the session on Tuesday, near the middle of the day’s range. The USDA boxed beef cutout was down 34¢ at midsession yesterday and closed 28¢ lower at $243.40. This was up from $241.60 the previous week.
The USDA estimated cattle slaughter came in at 122,000 head yesterday. This brings the total for the week so far to 241,000 head, down from 242,000 last week but unchanged from a year ago. Cash live cattle continue to trade inside last week’s range.
In Nebraska on Tuesday, 1,063 head traded at 110 vs. a range of 110 to 111 and an average price of 110.64 last week.
The upside appears limited with uncertain demand and adequate supply. February cattle resistance is at 114.02, with 111.47 as support.
Hog Market Ideas
While the lean hog market has seen an impressive rally, the large supply into early 2021 plus the increased need for active exports to absorb that supply suggests that follow-through buying in the hog market will be tough to come by.
The market has become more and more dependent on large exports, especially to China, to absorb short-term excess supply. If the product market stalls out on the rally, the cash market trend could remain down and the premium structure of the 2021 contracts could be tested.
As China’s pork production expands, its need for imports could begin to subside. The CME Lean Hog Index as of November 27 was 66.81, down from 67.15 the previous session and 68.14 the previous week.
Traders view the market as slightly overbought after the recent upside breakout, and a close back under 68.47 would turn the chart pattern looking a bit toppy.
The USDA pork cutout, released after the close yesterday, came in at $76.05, down $2.80 from $78.85 on Monday and down from $76.81 the previous week. This is the lowest the cutout has been since September 2. China’s national average spot pig price as of December 2 was up 1.5% from the previous day. Prices are up 7.4% for the week, up 2.1% for the month, and down 2.9% from a year ago.
The USDA estimated hog slaughter came in at 493,000 head yesterday. This brings the total for the week so far to 990,000 head, down from 994,000 last week and down from 992,000 a year ago.
The market will need a steady flow of bullish export news to hold the cash prices up. China is expanding production rapidly, and this could sour the export market in 2021.
February hog futures contract close-in resistance is at 70.32, with 67.37 and 66.27 as support. April hog selling resistance is at 71.72, with support at 68.97. Aggressive short-term traders can sell.
For daily updates on cattle, hogs, corn, wheat and the soy complex, visit hightowerreport.com.