Livestock Analysis | May 3, 2022
Price action: June lean hogs fell $2.775 at $102.20, the contract’s lowest closing price since $101.875 on Jan. 19.
Fundamental analysis: Lean hog futures took further pressure from fund liquidation driven by slumping technicals. Fundamentally, USDA’s latest Cold Storage Report, which showed higher pork supplies than expected, appears to be hanging over the market, and cash benchmarks have also eroded. The CME lean hog index fell 18 cents to $101.59, the fourth consecutive daily drop. The index currently holds a premium of around $1.50 to nearby May futures, which suggests more downside price action in the near term. The next index quote is expected to drop 44 cents to $101.15. The national direct five-day rolling average cash hog price today was quoted at $98.50. Wholesale pork cutout values early today rose 28 cents to $106.86, led by gains in bellies. Movement was decent at 167.23 loads.
Hog market bulls hope usual seasonal strength will kick in soon, as temperatures over much of the U.S. are forecast to rise next week, potentially boosting grilling demand. Also, USDA data projects lower hog numbers coming to market this summer.
Technical analysis: Hog market bears have a firm near-term technical advantage, with prices in a four-week-old downtrend. However, prices are now short-term oversold and due for a good corrective bounce. A bearish head-and-shoulders top reversal pattern has mostly played out on the daily bar chart. The next upside objective for bulls is to close June prices above solid resistance at $110.00. The next downside objective for bears is closing prices below solid support at $100.00. First resistance is seen at $105.00, then at this week’s high of $106.75. First support is seen at $102.00, then at $101.00.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
Price action: June live cattle futures couldn’t sustain an attempted bullish breakout and closed up just 12.5 cents at $135.325. May feeder futures advanced 97.5 cents to $162.40.
Fundamental analysis: Last week’s surprising cash market firmness in the wake of a bearish USDA Cattle on Feed report and the sharp negative futures reaction, along with expectations for active grocer buying of beef through the first half of May, drove Monday’s strong cattle futures advance. The rally continued early today, boosting June future above short- to intermediate-term (10-, 20- and 40-day) moving averages. But bulls couldn’t sustain the upward momentum and the contract posted a low-range close. Still, the June contract’s discount to cash prices the last two weeks just above $143.00 seems excessive at this point, considering grocers’ historical pattern of buying beef aggressively over the next two weeks ahead of Memorial Day weekend and the first weekend of June. Conversely, from a historical standpoint, the seasonal trend tends to be downward from early spring into summer.
Feeder futures likely garnered strength from Monday’s strong fed cattle bounce and from recent weakness being exhibited by the grain and soy markets. Look for sustained feeder strength if the implied cost of feed keeps falling.
Technical analysis: The late setback and low-range close kept the short-term technical advantage with the bears. A strong band of resistance now extends from the June contract’s 20-day moving average at $135.65 to today’s high at $136.275. That’s backed by the bottom of the April 25 chart gap at $136.85, then at the top of the gap at $138.35. A push above those levels would have bulls targeting $140.00. Look for initial support at today’s low of $134.80, then at last Friday’s low of $132.50. A drop below that point would have bears targeting the pivotal $130.00 level.
Bears probably enjoy a slight advantage in May feeder futures, but another significant advance could shift that to the bulls. The 10- and 20-day moving averages put initial support near $160.87, with backing from last Wednesday’s low at $157.20, then Friday’s low at $156.225. Bears are likely targeting the $150.00 level. Initial resistance stands at the 40-day moving average near $163.28, with a breakout above that level opening the door to a test of the April 22 high at $165.10, then March 29 high at $170.40.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
