Cattle market weakness to spark investors to sell, analyst says

Live Cattle

Long liquidation threat continues with beef downtrend. 

There will need to be some stability in the beef market to slow the long liquidation selling in the futures. April cattle traded moderately higher during the session yesterday but closed lower on the day. The market traded to its lowest level since January 25. Continued weakness in the beef market continues to spark long liquidation selling by speculators. The USDA boxed beef cutout closed 96¢ lower at $255.72 yesterday, down from $260.88 the previous week and was the lowest it had been since April 2, 2021. 

Cash live cattle traded in good volume on Wednesday at prices that were around $2 lower than last week. There were 8,773 head traded across the five regions with a weighted average price of $140.24, down from an average of $143.21 last week. The USDA estimated cattle slaughter came in at 123,000 head yesterday. This brings the total for the week so far to 369,000 head, up from 354,000 last week and 362,000 a year ago. Technical indicators are extremely oversold, and the market is probing for a short-term low.

Market ideas

The live cattle market is probing for a short-term low, but beef remains in a short-term downtrend. April cattle support is at $138.97, with resistance at $143.17 and $144.22. 

Lean Hogs

Weights too high, and if slaughter normalizes, price may ease. 

With their oversold condition, the lean hog futures look set for a recovery bounce. However, the upside looks limited, and with high open interest and a hefty net long position held by speculators, sellers could get active if support levels are violated.

If slaughter continues to come in near expectations instead of the sharply lower-than-expected slaughter that took place in the first two months of the year, the market will need to absorb the increasing production ahead. Exports could continue at a sluggish pace with less interest from China and many other countries showing an increase in production. 

News of a jump in weights for Iowa/Minnesota suggests that short-term slaughter could come in a little higher than trade expectations. The average hog weight for Iowa-Southern Minnesota as of February 26 was 287.8 pounds, up from 287.5 pounds the previous week and 287.1 pounds a year ago. The weights a year ago were higher than normal. The five-year average weight is closer to 285 pounds. This data suggests that pork production may begin to come in a bit higher than expected. 

The USDA pork cutout, released after the close yesterday, came in at $105.95, down 64¢ from Tuesday and down from $107.26 the previous week. This is the lowest the cutout has been since February 16. The futures are still trading at a much higher-than-normal premium to the cash market. The CME Lean Hog Index as of February 28 was 99.66, up from 99.09 the previous session and up from 98.16 the previous week. This leaves April hogs at a premium of $6.71 compared with a five-year average of $1.68 for this time of the year. 

The USDA estimated hog slaughter came in at 481,000 head yesterday. This brings the total for the week so far to 1.414 million head, down from 1.423 million last week and 1.483 million a year ago. 

Market Ideas

April hog close-in support is at $104.50, with $107.85 and $109.02 as resistance. A close through resistance would turn the charts bullish. Longer-term support is back at $101.70. 
 
 
--------------

For daily updates on cattle, hogs, corn, wheat, and the soy complex, visit hightowerreport.com.

*** This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.