Livestock Analysis | July 20, 2023
Price action: August hog futures led the deferred contracts sharply higher Thursday, posting a $2.70 jump to $100.625.
Fundamental analysis: Bears (and likely grocers) have apparently been facing increasing difficulty in forcing pork cutout values lower this week after having powered an approximate $3.00 drop to $112.71 Monday. Cutout stayed very close to that level Tuesday and Wednesday, then surged $3.20 to a fresh for-the-move high at $115.81 at noon today. It was encouraging that only pork loin values slipped, whereas bellies, butts and ribs posted big gains. We continue to expect short-term pork belly strength through the balance of the month, since grocer cuts to their bacon prices arrived just in time for BLT season.
Conversely, the cash market advance is seemingly slowing. The official CME lean hog index quote for Tuesday came in at $103.30 (up 77 cents). Wednesday’s preliminary calculation puts it at $103.60, up just 30 points. However, a renewed advance in wholesale prices would probably spur fresh buying interest from packers. The market may still have upside potential, especially if we’re correct in anticipating sustained pork belly strength, since August futures remain about $3.00 below the preliminary index quote after today’s big jump.
Technical analysis: Bulls still own the short-term technical advantage in August hog futures, especially after the contract posted its highest close since mid-March today. The spike high of $100.75 reached July 6 seemingly marks initial resistance, with considerable backing from today’s high of $101.85. A close above that level would likely have bulls targeting the July contract’s closing quote at $102.53, then its July 6 high of $103.70. Look for initial support at the psychological $100.00 level, then at today’s low of $98.50. A move below that point would open the door to a test of the 10-day moving average near $96.45.
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 all soymeal and corn-for-feed needs covered in the cash market through mid-August.
Price action: August live cattle fell $1.00 to $180.325 and nearer the session low after hitting a fresh all-time high of $182.975 early on. August feeder cattle dropped $1.70 to $245.10 and nearer the session low.
Fundamental analysis: The cattle futures markets saw profit-taking pressure today after recent good gains. Also, feeder cattle futures continue to feel the pressure of this week’s solid rebound in the corn futures market.
So far this week, cash cattle trade has been limited at around steady prices. Cash trade may not develop in earnest until after Friday afternoon’s USDA Cattle-on-Feed and Cattle inventory reports are released (at 2:00 pm CDT). We expect cash prices to firm again as the northern market should remain strong.
The noon report showed Choice boxed beef dropped another $1.64 to $301.95, while Select fell $1.23 to $274.73, taking the Choice/Select spread to $27.22. Movement at midday was decent at 92 loads. Seasonally, a low in wholesale beef prices should occur soon amid reduced slaughter levels and still-tight market-ready supplies of cattle.
USDA this morning reported U.S. beef export sales of 20,900 MT for 2023, up notably from last week and 60% above the four-week average.
Technical analysis: August live cattle prices hit a contract high (and a fresh all-time top) early on today and then reversed course to produce a bearish “outside day down” on the daily bar chart. If there is good follow-through selling on Friday then a more significantly bearish “key reversal” down would be confirmed, which would be one clue that a market top is in place. But right now the bulls still have the solid overall near-term technical advantage. Prices are in a four-month-old uptrend on the daily bar chart. The next upside price objective for the bulls is to close August futures above solid resistance at $185.00. The next downside technical objective for the bears is closing prices below solid technical support at $176.00. First resistance is seen at $181.50 and then at today’s contract high of $182.975. First support is seen at $179.00 and then at $178.10.
The feeder cattle futures bulls still have the solid overall near-term technical advantage. However, August feeders also scored a bearish outside day down today. The next upside price objective for the feeder bulls is to close August futures prices above technical resistance at $255.00. The next downside price objective for the bears is to close prices below solid technical support at $238.00. First resistance is seen at $247.00 and then at this week’s high of $249.95. First support is seen at $243.50 and then at $242.00.
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 all soymeal and corn-for-feed needs covered in the cash market through mid-August.
