Livestock Analysis | August 29, 2023
Price action: Seasonal factors continue weighing on the hog and pork complex. Nearby October hog futures fell $1.125 to $80.725 Tuesday.
Fundamental analysis: The usual factors weighing on hog and pork prices at this time of year are exerting strong downward pressure. Hog supplies and slaughter are apparently surging, with last week’s kill at 2.495 million head topping comparable week-ago and year-ago levels by about 3.5%. Both were rather large, especially when compared to forecasts. That is, the USDA’s June Hogs & Pigs report implied second-half 2023 hog supplies would generally run even with year-ago levels, but last week marked the seventh straight week of year-to-year increases and represented the third largest annual gain of those weeks. We suspect the industry operated more actively than usual last week as they prepared for next week’s holiday-shortened schedule.
Pork prices resumed their seasonal decline today after rebounding yesterday from last Friday’s $59.00 collapse in wholesale pork belly prices and the resulting $11.50 plunge in pork cutout. Still, October futures are trading firmly, thereby reflecting the discount below cash also built into the nearby contract. That is, today’s settlement still left it over $11.00 below the latest cash quotes. The CME confirmed last Friday’s hog index quote at $93.89 this morning, which represented a $1.29 drop from Thursday. Monday’s preliminary figure fell another $1.48 to $92.41.
Technical analysis: Bears still hold the short-term technical advantage in October hog futures. Bulls seemed set to shift the chart picture in their favor after yesterday’s sharp rebound, but they proved unable to overcome initial resistance at the contract’s 40-day moving average of $82.08. That’s backed by last Friday’s high of $83.125, with a breakout above that point opening the door for a fresh run at the August 1 high of $86.75. Today’s low puts initial support at $80.55, with considerable backing at the 10-day moving average near $80.11. That’s likely reinforced by psychological buying in the $80.00 area. Still, a drop below the latter point would have bears again targeting the August 16 low of $77.75.
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: Cash corn-for-feed and soymeal coverage expired in mid-August. Wait on signs of market lows before extending coverage.
Price action: Sustained wholesale firmness seemed to support the cattle complex Tuesday. The expiring August live cattle contract rose 30 cents to $181.00, while October futures slipped 7.5 cents to $181.475. The August feeder contract, which joins the live cattle contract in expiring at noon Thursday, rose 45 cents to $250.70, whereas the October contract dipped 27.5 to $256.75.
Fundamental analysis: The cattle and beef situation remains extremely tight, as best exemplified by cattle slaughter averaging 6.8% below year-ago levels since early July. These reductions have exceeded the diminished cattle supply implied by the monthly cattle on feed numbers, although last week’s extreme heat over the Great Plains probably limited the number of animals available to packers. And yet packers apparently proved able to persuade producers to take $2.29 less for their cattle than they had the week prior. However, Southern Plains cattle edged higher last week, while those in the north fell about $1.50. The underlying implication is that southern trading was much more active than in the north, thereby dragging the average lower. This may presage a price rebound if/when northern trading becomes more active.
After recently proving quite firm, choice-grade beef dropped $1.71 to $315.33 at midsession today. Select cutout slid $1.90 to $290.19. The $25.14 spread indicates the supply of high-quality beef remains very tight, which is emphasized even further by the consistency of choice quotes over $300.00. Thus, futures look likely to remain well supported.
The fed cattle weakness, particularly in the deferred contracts, seemed to undermine feeder futures, since sizeable losses in the grain and soy markets implied cheaper feed costs for feedyard managers. That often prompts a bullish response in feeder futures.
Technical analysis: Bulls still own the short-term technical advantage in October live cattle futures, as indicated by bears’ ongoing inability to penetrate initial support at the confluence of the contract’s 40- and 20-day moving averages near $180.62. That’s backed by the psychological $180.00 level, as well as the 10-day moving average near $179.85. A breakdown below that point would open the door to a test of the Aug. 18 low of $177.625, then the psychological $175.00 level. Initial resistance stands at yesterday’s high of $182.30, with a push above that point likely having bulls targeting the August 4 high of $183.725, then the contract high of $185.75.
Monday’s bullish breakout to a fresh contract high gave bulls strong control of the short-term technical advantage in October feeder futures. Today’s high marked initial resistance at $257.40, with strong backing from Monday’s top at $257.95. A fresh bullish breakout would have bulls targeting the psychological $260.00 level. Today’s low places initial support at $255.925. A drop below that point would again have bears targeting the contract’s 10- and 20-day moving averages near $252.67, then the 40-day moving average at $251.52.
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: Cash corn-for-feed and soymeal coverage expired in mid-August. Wait on signs of market lows before extending coverage.
