Livestock Analysis | August 9, 2023
Price action: October lean hogs led the complex lower, falling $3 to $81.575. Meanwhile, expiring August futures fell 45 cents to $101.65.
Fundamental analysis: Lean hog futures fell under pressure throughout the session as the cash market continues to erode. The CME confirmed Monday’s 46 cent drop in the cash index to $104.58 and the index is projected to fall an additional 24 cents to $104.34 on Tuesday. Futures outpaced that loss today, despite the deep discount already built into deferred contracts. Traders seem overly pessimistic in the futures market, expecting a further drop than the seasonal norm and pricing in more weakness in the cash market than we expect. Export demand has kept up well above year ago levels, with June exports 9.5% above year-ago, though they fell 5.5% month-over-month. Pork demand should continue to perform well, as cattle prices remain near all-time highs, which will likely turn into higher wholesale and grocer prices as summer comes to an end. This should bode well for pork as a substitute, boding well for domestic demand as well.
Wholesale prices remain seemingly stuck in the same sideways range that has controlled price since mid-July. Carcass values made up a portion of yesterday’s losses, rising 53 cents to $112.62 at midsession. Values were led higher by bellies, which remain volatile. Other cuts were mixed, with half the values rising and half of them falling. Movement continues to be strong ahead of Labor Day, coming in at 152.76 loads. Movement hit the second highest level of the month Tuesday at 292.45 loads.
Technical analysis: October lean hog futures fell sharply on the session, with accelerated selling towards the close. Last week’s low at $81.025 was protected, loss of which would give the near-term technical advantage to the bears. That will remain first support, backed by $80.55, then the psychological $80.00 level. Bulls are looking to reclaim $82.00, which is reinforced by the 40-day moving average at $82.01. Bulls are targeting a close above $84.75, which capped buying efforts earlier this week.
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: Expiring August live cattle futures rose 87.5 cents to $180.575 Wednesday, while most-active October gained 80 cents to $181.70. October feeder futures advanced 92.5 cents to $252.15.
Fundamental analysis: Cash cattle trading seemingly remained at a standstill Wednesday, but sustained beef firmness supported cattle futures. Although the monthly pattern of grocers actively buying beef for planned features early next month will likely hold again this month, especially with the first weekend in September being Labor Day weekend, beef prices have not risen significantly during early August. Still, after firming Tuesday, choice beef cutout rose 90 cents to $302.39 at midsession today. Select cutout climbed $1.15 to $276.16. And while it now looks as if grocers will not buy beef very aggressively this August, the wholesale market seems unlikely to prove vulnerable to significant declines before the last few days of August. Packer margins are in the red, implying they’ll remain very reluctant to pay more for cattle than they did last week, especially since a moderate increase might easily push cash prices to a fresh record high (above the June peak). Still, packers may have little choice due to the tightness of market-ready feedlot supplies and the commitments they’re making to grocers in preparation for Labor Day features. Thus, the upward trend in nearby fed cattle futures seems likely to continue.
Feeder futures also seem set to continue rising, especially if the upward trend in fed cattle prices and the concurrent seasonal decline in grain/feed values persist. These circumstances imply feedlot operators will be able to boost their bids for cyclically tight and tightening supplies of calves and yearlings.
Technical analysis: Bulls are clearly maintaining their short-term technical advantage in October live cattle futures. Bears did prove able to force a dip below support at the contract’s 10-day moving average near $180.93, but the contract established added support at the daily low of $180.525. One can certainly argue the strong close above the 20-day moving average near $181.30 made that point initial support. Conversely, a drop below the daily low would have bears targeting pivotal support at the 40-day moving average near $179.07. Bulls proved unable to top initial resistance at Tuesday’s high of $182.00, but a breakout above that point would have them targeting last Friday’s high of $183.725, then the contract high at $185.75.
Although bears were able to cause a sharp pullback from Monday’s contract high of $256.25, they weren’t able to force a bearish followthrough today, thereby leaving bulls with the short-term technical advantage in October feeder futures. A move back above initial resistance at yesterday’s high of $253.175 would open the door to a retest of the contract high, then a push toward the psychological $260.00 level. Look for initial support at the 20-day moving average near $251.16, with close backing from today’s low at $251.00. Strong support remains at the 40-day moving average near $248.10.
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.
