Livestock Analysis | June 22, 2023
Price action: Hog futures fell sharply despite continued cash gains. Nearby July futures dove $2.90 to $91.85 Thursday, while most-active August tumbled $2.80 to $89.975.
Fundamental analysis: Prospects for sustained seasonal strength in hog and pork values seemingly remain high, but apparent skepticism hit the market hard today. As expected, Tuesday’s official quote for the hog index matched the anticipated 87-cent rise to $89.62. Moreover, Wednesday’s preliminary figure climbed another 85 cents to $90.47. Bears may have been reacting to the pork cutout drop from yesterday’s midsession high of $98.66 to a daily close at $96.08 and this morning’s follow-through dip to $95.83. We think it’s too early to expect grocers to cut back purchases for Independence Day features. And as noted yesterday, big reductions in barrow and gilt weights are exacerbating the ongoing seasonal decline in pork production (generally more due to slaughter reductions than low weights). We still expect hog and pork supplies to remain very tight through early July.
Technical analysis: Although today’s breakdown did considerable technical damage, we think bulls still own the short-term technical advantage in August hog futures. The close in the $90.00 area implies support persists around that level, while the drop didn’t challenge support at the contract’s 10-day moving average near $88.78. Those are backed by the 40- and 20-day moving averages near $86.10 and $84.57, respectively. Today’s high marked initial resistance at $93.85. A close back above that level would have bulls targeting the April high at $94.95, then the psychological $100.00 level.
What to do: Carry all risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on all corn-for-feed and soymeal needs at this time.
Price action: August live cattle rose $1.40 to $171.15. August feeder cattle gained $2.95 to $230.675. Prices closed near the session highs.
Fundamental analysis: The live and feeder cattle futures markets today saw corrective bounces after prices hit multi-week lows Wednesday. Today’s gains now give cattle futures market bulls near-term benchmarks to defend: this week’s lows. They have their work cut out as cash cattle market fundamentals have weakened recently. Cash cattle trade this week began around $2.00 lower than last week. Last week’s average was $184.92, which was nearly $4.00 below the week prior. Seller interest so far this week is limited, however, as futures are already trading well below the cash cattle market. The noon report showed Choice grade wholesale beef prices dropped another 95 cents to $333.30, while Select rose $1.10 to $305.35. Movement at midday was 53 loads. The Choice-Select spread is presently $27.95.
While evidence is building that the cash cattle market has peaked, our research suggests the cattle market has a tendency to move higher later in the year when cash cattle tops prior first-half highs in June. However, the recent strength in fresh pork and hog prices indicates a potential retailer shift from beef to pork features, which puts any late-season cattle rally in doubt.
Feeder cattle futures may struggle to make further price gains as feed prices have soared recently.
Traders Friday morning will examine the weekly USDA export sales report, delayed one day by the federal holiday on Monday.
Technical analysis: The cattle futures bulls have the overall near-term technical advantage. However, price uptrends on the daily bar charts have stalled out. Live cattle bulls' next upside price objective is to close August futures prices above solid resistance at the contract and record high of $178.10, basis nearby futures. The next downside technical objective for the bears is closing prices below solid technical support at $166.00. First resistance is seen at $172.50 and then at $174.00. First support is seen at today’s low of $169.25 and then at this week’s low of $168.10. The next upside price objective for the feeder bulls is to close August futures prices above technical resistance at $237.50. The next downside price objective for the bears is to close prices below solid technical support at the May low of $221.15. First resistance is seen at $231.875 and then at $233.00. First support is seen at today’s low of $227.95 and then at this week’s low of $226.70.
What to do: Carry all risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal coverage.
