Livestock Analysis | July 18, 2023
Price action: August hog futures rebounded from Monday’s big losses, climbing $1.50 to $96.275, whereas deferred contracts were mixed.
Fundamental analysis: Sustained cash strength likely boosted the nearby August lean hog contract Tuesday. The CME hog index for last Friday was officially quoted at $101.60 today, matching the 57-cent advance indicated by the preliminary calculation. Monday’s preliminary figure posted a 93-cent jump to $102.53. The fact that the rise easily exceeded the gains posted the previous two sessions likely made traders rethink the discount built into the August contract and caused them to buy the discounted contract rather aggressively. It still ended the day over $6.00 below the cash equivalent, showing the market still anticipates considerable weakness to prevail before its August 14 expiration.
Traders are probably correct to anticipate a seasonal downturn, but we’re not convinced the likely summer peak will come as early as they expect. Our optimism stems from the BLS report indicating grocers had cut retail bacon prices by almost 16% annually during June; we expect similarly large YOY cuts in July, which implies vigorous bacon consumption and sustained support from that cut into early August. Retail price reductions for the other grilling cuts also seem likely to boost consumer demand, whereas slaughter will probably remain near annual lows over the next few weeks as well.
A sustained rally and/or firmness in wholesale pork prices will likely be required to support continued gains in hog prices. Pork cutout did edge up 41 cents to $113.12 at midsession today, although that’s still down about $2.50 from last Friday’s closing high of $115.55. Still, we remain cautiously optimistic on this point as well since pork cutout topped $130.00 at the highs of the past two years.
Technical analysis: Bulls still seem to own the short-term technical advantage in August lean hog futures, especially after the late surge carried the contract back above its 10-day moving average (near $96.10) at the close. Bears were likely encouraged by yesterday’s settlement below that level (for the first time since May 30). If the market were to move back below that point in the days ahead, they would be targeting the 20-day moving average near $93.90, the psychological $90.00 level, then the 40-day moving average near $88.39. Look for initial resistance at today’s high of $97.65, with backing from last week’s high of $96.80. A move above that level would open the door to a retest of the $100.00 level, then the July 6 high of $100.75.
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 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.
Price action: August live cattle rallied $1.15 to a contract-high close at $181.275. August feeder cattle succumbed to grain market strength, falling $1.25 to $248.00.
Fundamental analysis: Cattle futures traded inside of Monday’s range, just shy of the all-time high as bulls garner momentum for another leg higher. Very little cash trade has taken place thus far this week, with 113 head trading hands at an average of $184.24, just shy of last week’s average at $184.27. Packer margins have been shrinking and recently turned red for the first time since mid-December, according to Hedgersedge.com. This could pressure cattle prices as plants reduce kill runs to manage tight market-ready supplies. Despite this, the cash cattle market is likely to continue the recent rebound higher as consumer demand remains strong and supplies remain tight.
Cutout values at midsession were mixed after ending the day Monday mixed as well. Choice cutout fell 60 cents, giving up some of yesterday’s gains to $306.18. Select cutout rose 9 cents to $275.83, making up a little of yesterday’s loss. The Choice/Select spread narrowed slightly to $30.35 on 69 loads.
Feeder cattle bulls struggled to garner momentum today as the cost of grains rocketed higher on a hot and dry forecast and the Russian strike on the Ukrainian port of Odesa. The fundamental situation has not changed much and feeders are likely to continue recent strength, despite the increased cost of feed.
Technical analysis: August live cattle futures surged on the session, though prices remained within Monday’s range. Bulls still enjoy the technical advantage and are targeting the all-time high of $182.875, made on June 7. Additional resistance comes in at Monday’s high of $181.60. Expect support from the $180.00 level which has capped selling pressure the past two sessions; it’s backed by the 10-day moving average of $178.715, then firm daily bar-chart support at $177.00.
August feeder cattle fell under pressure, though bulls retain the technical advantage. Bulls are targeting the July 12 all-time high of $251.30. Price has largely remained between the 10-day moving average and the record high since, tightening in a range as the market builds momentum. Resistance starts at today’s high of $249.625, backed by $251.3. Bears are looking to take out 10-day moving average support of $246.15, backed by the July 13 low of $243.5. Additional selling pressure will face support at the 20-day moving average at $243.50.
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 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.
