Livestock Analysis | August 30, 2023
Advice: We advise livestock producers to cover all corn-for-feed and soymeal needs in the cash market through September.
Price action: Despite sustained cash and wholesale pork weakness, hog futures turned sharply higher Wednesday. Nearby October soared $2.875 to $83.60.
Fundamental analysis The ongoing seasonal breakdown in cash hog prices continues this week. Monday’s preliminary quote for the lean hog index was confirmed at $92.41, down $1.48 this morning, with Tuesday’s preliminary calculation putting it another $1.74 lower at $90.67. And after falling another $3.20 yesterday, to $92.85, pork cutout slid another 26 cents to $92.69 at noon today. As one would expect, futures began the day lower and seemed set to make a fresh run at their recent lows.
And yet, the market rebounded from the opening lows shortly thereafter, stalled near unchanged levels around midmorning, then moved sharply higher as trading would down for the day. Two factors may have played roles in the rise. First and foremost, the weekly report on Iowa-southern Minnesota pig sales and weights showed last week’s average market hog weight plunged 4.0 pounds from the week prior to 274.3 lbs. per head. The drop likely reflected last week’s extreme heat over the region but may also indicate the industry was pulling hogs ahead. Second, the sharp weight drop and suggestion of reduced market-ready supplies may have reminded traders the hog/pork complex sometimes posts a short-term low in late August or early September, then rallies into early October. For example, it bottomed around $46.00 around Labor Day 2018 and rallied to $69.00 in early October before turning lower once again. In fact, the Labor Day bottom marked the second-half low that year. We expect the market to fall significantly lower late in the year, but a Labor Day low certainly isn’t unheard of.
Technical analysis: Today’s late surge in October lean hog futures flipped the short-term technical advantage to bulls, since it closed well above its 40-day moving average for the first time since August 9. The contract ended the day bumping up against limit-up resistance around $83.725. A breakout above that point will likely have bulls targeting the August 9 high of $84.25, then the August 1 high of $86.75. A drop below Initial support at the 40-day moving average near $82.14 would open the door to a retest of support at the contract’s 20- and 10-day moving averages near $80.95 and $80.59, respectively, then the psychologically important $80.00 level.
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: NEW ADVICE – Cover all corn-for-feed and soymeal needs in the cash market through September.
Advice: We advise livestock producers to cover all corn-for-feed and soymeal needs in the cash market through September.
Price action: Pessimism about the short-term outlook depressed the cattle complex. Expiring August futures, which go off the board at noon tomorrow, tumbled $2.20 to $178.80 Wednesday, while most-active October fell $1.425 to $180.05. August feeders, which also expire at noon tomorrow, slid 65 cents to $250.05. October feeder futures dropped $1.525 to $255.225.
Fundamental analysis: Cash market and wholesale beef news seemed moderately supportive of cattle futures early today, but that apparently did little to mitigate the late-session breakdown. After cash prices fell rather significantly last week, with the size of the drop seemingly being exacerbated by heavy trading in the south, a few head of northern fed cattle changed hands at $187.00 Tuesday. Today’s midsession beef report indicated a modest $1.25 rise to $315.61 in choice beef cutout, whereas select quotes slipped. Steer weights and the Choice/Select spread at $26.7 as of noon Wednesday imply continued tightness of market-ready feedlot supplies. Still, the midday drop in cattle futures suggests cash trading broke loose at lower levels around that time. Surging retail prices for most beef cuts may be starting to stifle consumer demand.
Feeders followed fed cattle lower despite fresh slippage in grain and soy prices, despite the implied reductions in feed costs usually favoring increased feedyard demand for replacement yearlings. Conversely, while the supply of heavy calves and yearlings available for late summer-fall placement into those lots is likely increasing on a seasonal basis, they continue declining cyclically as the ranching industry thins herds.
Technical analysis: Today’s October cattle futures drop seemed to shift the short-term technical advantage to bears, since the contract clearly closed well below its pivotal 40-day moving average near $180.69. Initial resistance at that level is backed by Monday’s high at $182.30, although a breakout above that level would again have bulls targeting the July 20 high of $185.75. Look for initial support at the psychologically important $180.00 level, with significant backing from the 10-day moving average at $179.92. A drop from that area would open the door to retest of the August 23 low of $178.075, then the August 18 low of $177.625.
Bulls retained their short-term technical advantage in October feeder futures despite today’s drop. The psychologically important $255.00 level seemingly marks initial support, with stout backing from today’s low of $254.50. The contract’s 10-, 20- and 40-day moving averages mark added support near $253.10, $252.83 and $251.66, respectively. Today’s high implies initial resistance at $256.55, with backing from yesterday’s top at $257.50, then Monday’s contract high of $257.925. A move above that point would have bulls targeting the $260.00 level.
What to do: Get current with feed advice. Carry all production risk in the cash market for now, but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE – Cover all corn-for-feed and soymeal needs in the cash market through September.
