Livestock Analysis | July 11, 2022
Hogs
Price action: July lean hog futures closed up 30 cents at $113.15. August hogs closed down 80 cents at $108.375 and closed near mid-range.
Fundamental analysis: Deferred lean hog futures contracts today were pressured by a strong U.S. dollar index that surged to a 20-year high today, prompting worries about reduced export demand for U.S. pork. There are also ideas the cash hog market is close to or has put in a seasonal top. The August hog futures’ discount of around $2.50 to the cash index suggests futures traders believe the cash market has put in a top. The projected CME lean hog index price as of last Friday is up 81 cents at $111.77. The five-day rolling average national direct cash hog price quote today was $118.54.
The pork cutout value at noon today fell $1.78 at $112.89, with bellies leading the declines. However, movement was good at 189.97 loads. Hog market bulls are hoping better pork demand this time of year that usually gets a lift from bacon buying ahead of BLT season will keep a floor under present cash and futures price levels.
Technical analysis: Lean hog futures bulls have the slight overall near-term technical advantage but need to show fresh power soon to keep it. The next upside price objective for the hog bulls is to close August prices above solid chart resistance at last week’s high of $111.75. The next downside price objective for the bears is closing prices below solid technical support at $103.00. First resistance is seen at today’s high of $110.425 and then at $111.75. First support is seen at $107.50 and then at $105.00.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.
Cattle
Price action: Live and feeder cattle futures rallied into the close to post strong gains and finished near session highs. August live cattle firmed $2.20 to $136.15. August feeders strengthened $3.15 to $174.875.
Fundamental analysis: Cattle futures opened under pressure from negative outside markets. Recession concerns tied to new outbreaks of Covid in China and a surging U.S. dollar weighed on the U.S. stock market and spilled over to cattle. Strength in the corn market also weighed on cattle futures for much of the day. But the market caught a bid late in the day, which could trigger followthrough buying on Tuesday, depending on how outside markets perform.
Funds extended their short positions in the cattle market in the latest data from the Commodity Futures Trading Commission. With that in mind, one could surmise the late rally was tied to fund short-covering. Commercials also see value in owning futures, which is typically a bullish sign.
Morning boxed beef trade showed firmer prices with Choice up $1.00 and Select $2.34 higher, though movement was light at just 57 loads. With retailer restocking following the Fourth of July likely complete, they are likely to be selective – more active buyers on days when prices are lower and restricted buying on days when packers raise prices.
Cash feeder cattle prices at the closely monitored Oklahoma City auction were mostly firmer amid moderate to good demand. That helped support the late rally in feeder futures, though they carry solid premiums to the cash index.
Technical analysis: August live cattle futures posted a bullish reversal on the day after filling this morning’s downside gap and closing above last Friday’s high. Followthrough buying would give bulls short-term momentum, but the overall pattern is choppy and neutral. Near-term resistance is layered from $137.25 to the June high at $137.95. Today’s low at $132.875 is initial support, with stronger support at the June 30 low of $131.70.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.
