Livestock Analysis | August 16, 2022
Price action: October lean hog futures plunged the $4.00 daily limit to $96.575, the lowest closing price since Aug. 3.
Fundamental analysis: Hog futures reversed sharply lower, possibly as traders anticipated a typical seasonal cash market downturn during late August and early September. Hog supplies typically increase substantially through late August, which often coincides with a seasonal slump in demand as school resumes and the summer grilling season winds down. Signs of a peak in key cash benchmarks contributed to selling. Tomorrow’s CME lean hog index is expected to fall 65 cents to $121.06, which would mark the fourth decline in the past five days.
One key question is how sharply the market might fall the rest of 2022. Today’s October futures close implies the industry expects a major decline over the next two months, whereas history suggests the cash market will rebound between Labor Day and the end of September, then turn lower again during October. Given the apparent strength of consumer demand during the first two months of summer, we remain cautiously optimistic about the late-summer hog and pork market outlook and believe nearby futures are underpriced. Pork cutout values rose 37 cents early today to $125.28, near a two-week high, on strong movement of 206 loads.
Technical analysis: Tuesday’s technical breakdown flipped the short-term technical advantage to bears, especially with the breakdown carrying the October contract price below its 10- and 20-day moving averages. The 20-day moving average places initial resistance around $97.48, with backing from the 10-day at $99.07. A bullish rebound would like face psychological resistance at the $100.00 level, with a move above that point likely facing additional resistance at last week’s high of $101.65. Look for initial support at the 40-day moving average near $94.83, with a drop below that point likely having bears targeting the July 26 low of $92.425, then the $90.00-level.
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.
Price action: October live cattle rose $1.875 to $145.675, the contract’s highest closing price since April 22. September feeder cattle rose $2.475 to $185.475
Fundamental analysis: Live cattle futures surged to a 3 1/2-month high behind bullish technicals and optimism the cash market will extend recent gains. Cash cattle prices look poised to climb for a third straight week amid strong packer margins and an outlook for tightening supplies of slaughter-ready animals, as reflected by roughly $10 or greater premiums held by February and April 2023 futures versus October. USDA’s Cattle on Feed report Friday is expected to show feedlot placements during July fell 1.5% from the same month a year earlier, based on the average estimate in a Reuters survey of analysts. The number of cattle on feed as of Aug. 1 is expected to rise 0.7% from a year earlier, while marketings are expected to decline 2.9%.
Wholesale beef prices strengthened early today and movement picked up from recent days, a possible signal of stepped-up retailer demand ahead of the Labor Day weekend holiday. Choice beef cutout values rose $1.88 this morning to $266.34 on strong movement of 80 loads.
Technical analysis: Bullish momentum in live cattle futures accelerated today after the October contract broke above last week’s high of $145.475 and nearly filled a gap created on the daily bar chart in April. October futures rose as high as $145.85 today, slightly under the top of the April gap at $145.975, which stands as an initial upside target for bulls. Followthrough gains over the next few days may compel bulls to target the contract high at $147.50, followed by $148.00 and $150.00. Initial support comes in at the 10-day moving average around $144.25, Monday’s low at $143.675 and the 20-day moving average around $143.25.
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.
