Livestock Analysis | June 13, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Hog futures were mixed Tuesday, with nearby contracts weak and the deferred rising. The expiring June contract slipped 5 cents to $87.125, while August edged up 5 cents to $87.425.

Fundamental analysis: The cash hog and wholesale markets continued their recent advances today. The CME officially quoted the hog index (for last Friday) 45 cents higher at $84.73, with Monday’s preliminary quote rising another 68 cents to $85.41. And after slipping modestly Monday, pork cutout advanced another $1.33 at noon today, reaching $89.53. That represented the highest carcass price for hogs since last Christmas, which, given the hog/pork sector’s propensity for reaching the lowest prices of the year at that time, offers a good example of just how the weak these markets have been during the first half of 2023.

Seasonal factors suggest hog and pork prices will continue working their way higher for another week or two, but seasonal strength becomes much less reliable after July 4. If the demand situation in the second half of the year follows the pattern of the first half, it would be easy to assume prices will turn lower at that time. Conversely, if the ongoing surge in wholesale beef prices finally persuades grocers to begin featuring pork more aggressively in the second half of the year, hog and pork price prospects seem likely to look much better. We’ll have to wait and see on this score.

Technical analysis: Bulls apparently hold the short-term technical advantage after weeks during which bears were dominant. Bulls proved able to force an August futures close above the contract’s 40-day moving average near $85.99 yesterday (for the first time since March 13), with that pivotal point now acting as initial support. It’s backed by yesterday’s low at $83.95, then by the contract’s 10- and 20-day moving averages near $83.46 and $82.18, respectively. Today’s high essentially matched initial resistance at yesterday’s high of $87.975. A breakout above that point would have bulls targeting the psychological $90.00 level, then the April 28 high of $94.95.

What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through mid-June.

 

 

Cattle

Price action: Cattle futures bounced from early losses today and closed near the daily highs. The expiring June contract settled at $179.425, up 35 cents, while most-active August rose 72.5 cents to $173.925. August feeder futures rallied $1.40 to $240.45.

Fundamental analysis: As is so often the case, there was minimal cash trading Monday as feedlot operators and packer buyers staked out their trading positions to start the week. Producers still seem to have the advantage after fed cattle averaged $188.75 over the five-market area, a fresh all-time high, last week. Wholesale beef prices continued climbing at midsession today, with choice cutout adding another 90 cents to $338.33 after leaping $4.50 Monday. Select cutout reached $311.00 at noon. While the latest reading for steer dressed weights (which dipped to 883 pounds/head during the week ended May 27), edged above the comparable year-ago level for the first time since last December, this doesn’t necessarily mean the supply of market-ready cattle is increasing significantly, especially with the choice-select spread surging above $27.00. We suspect persistently strong grocer buying will power another cash market gain this week, but their tendency to slow beef purchases about 10 days before holiday weekends suggest this week’s cash prices could represent a short-term peak. 

Feeder futures rallied strongly despite today’s modest gains in corn and soybean meal futures. That may reflect the ongoing surge in cash feeder cattle values. For example, after spiking about $9.00 higher to $216.12 on June 2, the CME feeder index is now quoted at $227.99. Thus, the premiums built into feeder futures look much less drastic than they did two weeks ago, thereby giving them room to rally further. 

Technical analysis: Today’s late price action implies bulls still own the technical advantage in August live cattle futures. After opening weakly and surging late, today’s close again has the market bumping up against initial resistance marked by the June 5 high of $174.425. A breakout above that point would have bulls targeting the psychological $175.00 level, then the June 7 contract high at $178.10. A move above that point would open the door to a test of the psychological $180.00 level. Bears proved unable to force a close below initial support at the contract’s 10-day moving average near $172.64 today, with the daily low marking added support at $171.925. A drop below that point would have bears targeting $170.00.

The technical situation seems close to equilibrium in nearby August feeder futures, although the strong close suggest bulls have the upper hand. Bears couldn’t force a strong test of solid support marked by the 20-day moving average near $237.32, with the daily low putting initial support at $237.55. Still, a drop below the 20-day moving average would have bears targeting the 40-day moving average near $232.39. Conversely, bulls couldn’t force a close above initial resistance at the 10-day moving average of $240.48. A breakout above that point would seemingly open the door to a retest of the June 7 peak at $245.175 (which was just one tick under the all-time high for nearby feeder futures).

What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through mid-June.

 

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