Livestock Analysis | July 27, 2023
Price action: August lean hog futures edged up 37.5 cents to $102.25 Thursday, while the deferred contracts posted varying losses.
Fundamental analysis: Hog traders are anticipating the usual seasonal downturn in hog and pork prices. The big questions, as usual, are when the drop begins and how sharply prices drop. We suspect the decline will be somewhat belated and that it won’t be all that severe, particularly in the short run. This optimism is based upon ideas that significant grocer reductions to their asking prices for the various pork cuts, especially bacon, are spurring consumer off-take and boosting overall demand. Renewed pork belly gains at the wholesale level this morning helped boost pork cutout $1.85 to $114.60. Strong bacon demand seems likely to continue supporting wholesale and cash strength for another week or two.
However, the hog index advance slowed sharply at midweek. The CME confirmed the 53-cent rise to $105.79 projected for the hog index Tuesday. But Wednesday’s preliminary figure rose just 5 cents to $105.84. Again, sustained wholesale strength during the days just ahead will likely be needed to avert the long-anticipated cash-market downturn as hog and pork supplies begin to build seasonally. The discount built into the nearby August contract with expiration looming on August 14, as well as much larger discounts built into the fourth-quarter contracts, reflects the pessimism.
Technical analysis: Today’s August futures gain clearly kept the short-term technical advantage with the bulls since the daily high and high-range close have the market bumping up against overhead resistance. The daily high at $102.15 marked the contract’s highest quote since mid-March; a breakout above that point would have bulls targeting early-March congestion around $102.50, then the psychological $105.00 level. The narrow trading range of the past week marks strong support extending down to the psychological $100.00 level. A drop below that point would open the door to a test of the 10-day moving average near $99.19, then the 20-day moving average near $97.22.
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 62 1/2 cents to $178.05 today and nearer the session low. August feeder cattle rose 45 cents to $244.65 and nearer the session high.
Fundamental analysis: The cattle futures markets have spent most of this week in pause mode, which is not bearish given the still-bullish overall chart postures in both markets. This week’s big rally in the U.S. dollar index is a negative outside market element for the cattle markets and is limiting speculator buying interest.
Traders are still waiting for active cash cattle trade to develop. So far the cash market is still quiet and at a standstill. Packers don’t want to pay up and feedlots don’t want to sell at lower prices. Packers have been hesitant to raise cash bids given negative margins. Earlier this week light cash cattle trade was reported at higher prices. The noon report today showed Choice grade boxed beef prices fell another 20 cents to $303.14, while Select rose 17 cents to $279.98, narrowing the Choice/Select spread to $23.16. Movement at midday was 72 loads.
USDA this morning reported U.S. beef export sales of 21,400 MT for 2023, up 2% from the previous week and 43% above the four-week average.
Technical analysis: The cattle futures bulls have the solid overall near-term technical advantage. Live cattle futures 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 $175.00. First resistance is seen at this week’s high of $180.375 and then at $181.225. First support is seen at $177.50 and then at $176.00. The next upside price objective for the feeder bulls is to close August futures prices above technical resistance at the contract high of $251.30. The next downside price objective for the bears is to close prices below solid technical support at $235.00. First resistance is seen at $246.00 and then at $247.575. First support is seen at this week’s low of $242.00 and then at $241.00.
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.
