Livestock Analysis | July 12, 2023
Advice: We recommend livestock producers use the price setback in corn and soymeal to cover remaining July feed needs in the cash market. You were hand-to-mouth on corn-for-feed needs and had half of your meal needs for both July and August previously covered in cash.
Price action: August lean hog futures led the complex lower, falling $2.225 to end the day at $95.35. Nearby July futures saw a mild loss of 10 cents before settling at $101.175.
Fundamental analysis: Lean hog futures gave up most of yesterday’s gains as prices were unable to take out last week’s high and selling spilled over from volatile grain markets following today’s USDA Supply and Demand report. August futures saw extensive losses despite continued fundamental strength in the cash market. The CME confirmed Monday’s cash index quote of $98.66, which was up 51 cents from Friday. Tuesday’s preliminary quote came in an additional 70 cents higher to $99.36. This would put the index roughly $1.50 below July futures which are set to expire next Monday, pointing to trader’s belief of the seasonal cash rally rising slower than average over the next week. The cash index is over $4 over August futures, indicating the belief that weakness will overcome the cash market once July futures go off the board. It is our belief that the cash rally could sustain deeper into the summer as slaughter totals will likely be the lowest of the year and continued grocer demand will place a solid floor under prices.
Wholesale prices at mid-session were weaker following yesterday’s $4 jump higher. Carcass values fell $2.97 to $109.02, led by weakness in butts, ribs and bellies. It is likely that the daily report will show a bounce from the mid-session as some of the price drops seem excessive.
Technical analysis: August lean hogs retraced most of yesterday’s gains, although sellers were stifled by the 200-day moving average at $95.40. This will remain key support into tomorrow and is backed by the 10-day moving average at $94.63, which capped all of the downside earlier this week. Additional selling will encounter support at Monday’s low of $93.875, backed by the converged 100-day and 20-day moving averages at $92.30. Bulls are looking to take out today’s high of $99.00 before tackling psychological resistance at $100.00, then the recent for-the-move high of $100.75 made on July 6.
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: NEW ADVICE – You have all July soymeal needs covered in the cash market, with half of your August needs also covered. You should have your July corn-for-feed needs covered in cash.
Advice: We recommend livestock producers use the price setback in corn and soymeal to cover remaining July feed needs in the cash market. You were hand-to-mouth on corn-for-feed needs and had half of your meal needs for both July and August previously covered in cash.
Price action: Broad ag market selling sank the livestock markets Wednesday. August live cattle futures fell $1.95 to $176.875, while August feeders dipped 57.5 cents to $246.575.
Fundamental analysis: Live and feeder cattle fundamentals remain supportive, which likely accounted for today’s early push to fresh short-term highs across the livestock complex. It still looks as if packers are going to be forced to pay up for fed cattle later this week. The Iowa producer known for going his own way apparently did so again Tuesday, selling a few head at $180.00. That’s likely down a dollar or two from what he got last week, but we doubt the sale softened the stance of many of his counterparts across the country. Conversely, today’s futures setback may have weakened the determination of a few producers.
However, after falling sharply over the past week or so, wholesale beef prices stabilized at noon today. Choice cutout slipped 8 cents to $312.04, whereas select cutout bounced $2.08 to $282.32. But to keep the recent drop from $342.07 in perspective, it plunged about $75.00 to $264.88 in July 2021 before rebounding to a new August high at $347.58 two years ago. The choice-select spread remains quite wide at $29.72, still pointing to a comparative shortage of well-finished fed cattle. Bulls may also be encouraged by the latest retail price numbers from the BLS, which showed the average price of beef remained 2.3% below year-ago during June. This suggests consumer demand will remain robust.
Today’s drop in fed cattle futures spilled over into the feeder market despite concurrent losses in the grain/soy complex. Reduced feed costs implied by the latter should provide sustained support, but the premiums to the feeder index, now at $238.33, may tend to limit their upside potential.
Technical analysis: Although bulls still hold the short-term technical advantage in August live cattle futures, today’s reversal did significant damage to the technical picture. Look for initial resistance around today’s opening quote of $179.00, with backing at the psychological $180.00 level, as well as today’s high at $181.175. That’s further backed by the June contract’s expiration at $181.50 and it’s all-time record high at $182.875. Today’s low marked initial support at $176.525, with strong backing from the contract’s 10-day moving average near $176.20. A drop below the latter point would open the door to a test of the psychological $175.00 level, as well as the contract’s 20- and 40-day moving averages near $173.70 and $170.75, respectively.
Bulls still hold the technical advantage in August feeder futures as well, with initial support at today’s low of $245.525 enjoying robust backing from the psychological $245.00 level as well as the 10-day moving average near $244.99. A close below that area would have bears targeting the psychological $240.00 level, then the 20- and 40-day moving averages near $239.61 and $238.23, respectively. Look for initial resistance between yesterday’s high at $248.15 and last week’s top at $248.85. That area is backed by the psychological $250.00 level, then by today’s fresh all-time high at $251.30.
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: NEW ADVICE – You have all July soymeal needs covered in the cash market, with half of your August needs also covered. You should have your July corn-for-feed needs covered in cash.
