Livestock Analysis | July 6, 2023
Price action: Nearby hog futures set new summer highs but couldn’t sustain the gains Thursday. Expiring July hogs dipped $1.225 to $100.05, while August slipped 32.5 cents to $97.125.
Fundamental analysis: The lean hog index continued its summer surge early this week, with Monday’s rise of 37 cents to $95.68 officially confirmed this morning. But Wednesday’s preliminary gain diverged from the recent slow pace, jumping another $1.39 to $96.07. Anticipation of something along those lines likely powered the early futures advance, which sent the July contract to a high of $103.70.
Conversely, the midsession wholesale quote probably caused the retreat. After leaping $5.55 Monday to $108.00 and following through with a modest rise yesterday, pork cutout fell $2.31 to $106.38 at noon today. Butts, ribs, hams and bellies all posted sizeable losses. We wouldn’t be surprised if grocers doing some bargain hunting this afternoon lifts the daily average from the midsession low, and still harbor strong suspicions it will move even higher in the days ahead, but the noon setback clearly took the wind out of bullish sails.
It will be interesting to see the hog slaughter totals for this week and next, since the totals posted the past two weeks topped the comparable year-ago levels by an average of 3.2%. Given estimates that current supplies are roughly even with year-ago levels, the surge is believed to reflect active packer processing as they prepared for a short work schedule this week. Indeed, the Monday-Wednesday total came up 57,000 head (6.1%) below the comparable year-ago figure. This week’s total is likely to reflect packer profitability, whereas next week’s result will probably reflect the size of current market-ready supplies. We expect a somewhat reduced figure (from year-ago levels) next week.
Technical analysis: Although today’s setback from fresh highs could easily be construed as a bearish reversal signal, we think the bulls still have the short-term technical advantage in August hog futures. Look for initial resistance at yesterday’s high of $98.475, with strong backing from the psychological $100.00 level and today’s high of $100.75. Today’s low places initial support at $96.875. A drop below that point would have bears targeting the chart gap between yesterday’s low of $95.475 and Monday’s high of $95.325. A breakdown from that point would open the door to a test of the 10-day moving average near $92.54, then the 20-day moving average near $90.31.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have half of your soymeal needs covered for both July and August in the cash market. You are hand-to-mouth on corn-for-feed needs.
Price action: August live cattle fell $0.375 to $174.575 and nearer the session high. August feeder cattle dropped $2.245 to $242.275. Feeder prices closed near mid-range today after hitting a contract and record high Wednesday.
Fundamental analysis: The cattle futures markets saw profit-taking pressure today after recent gains. Cash market fundamentals are starting to weaken just a bit but remain overall solid. Cash cattle trading started around $178 in the southern Plains, mostly $1 to $2 lower than trade in that region last week. Northern feedlots are so far passing on lower bids, as their supplies are tighter. After plunging yesterday, wholesale beef prices at noon today dropped again, down $1.24 for Choice to $321.54. Select grade beef fell $2.23 to $290.46, taking the Choice/Select spread to $31.08. Movement at midday was 61 loads.
Live cattle futures are still trading under the cash market, which should keep a floor under futures prices in the near term. The futures discount reflects the general cash market weakness experienced by the cattle market during the summer months.
The two-day rebound in the corn futures market, after its steep slide recently, also limited buying interest in the cattle futures markets, especially those for feeder cattle, today.
Cattle traders will closely examine Friday morning’s weekly USDA export sales report, which is delayed by one day due to the Independence Day holiday on Tuesday.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have half of your soymeal needs covered for both July and August in the cash market. You are hand-to-mouth on corn-for-feed needs.
