Livestock Analysis | September 6, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Anticipation of sustained cash weakness seemed to depress hog futures again Wednesday, with the nearby October contract tumbling $1.30 to $81.875.

Fundamental analysis: Despite signs of firmness in cash prices, as well as a big Tuesday jump in pork cutout, the nearby October hog contract led hog futures lower Wednesday. The CME confirmed Tuesday’s preliminary figure for the Friday-Monday hog index quote at $86.56, down $1.21 from Thursday. In contrast, Tuesday’s cash market action essentially matched the results posted over the weekend, with the net result being a virtual halving of the preceding drop. The 55-cent decline puts Tuesday’s preliminary hog index quote at $86.01. Wholesale strength was reflected Tuesday’s big jump in pork cutout. The closing quote at $98.87 represented a $5.17 jump, with an approximate $18.00 leap in primal pork belly values playing a major role in the surge. Today’s midsession quote edged five cents higher to $98.92. However, today’s futures breakdown strongly suggests traders expect the wholesale market to turn quickly lower once again.

The bears might prove mistaken in this regard for two reasons. First, the huge 4.0 pound drop in Iowa-southern Minnesota hog weights two weeks ago was followed by a similarly low reading last week. Weights did rise modestly from the week prior, but the latest reading again fell far below comparable year-ago and five-year average levels. Second, hog and pork values sometimes have a tendency to rise from around Labor Day to mid-October. The 5-year average rise for pork cutout and the hog index is around $5.00 for both, despite the fact that some years, such as 2021 and 2022, experience substantial declines during the indicated six-week period.

Technical analysis: Bulls still seem to hold the short-term technical advantage in October futures despite today’s sizeable setback and close below what is now initial resistance at the contract’s 40-day moving average near $82.24. Secondary resistance at today’s high of $84.125 is closely backed by yesterday’s top at $84.725. A breakout above the latter point would have bulls targeting the August high at $86.75. Bears couldn’t force a drop below initial support at the 10-day moving average near $81.56, which is backed by the 20-day moving average near $80.79. Psychological support likely persists at $80.00.

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 corn-for-feed and soymeal needs covered in the cash market through September. 

 

 

Cattle

Price action: Nearby October live cattle futures soared $2.75 to $182.70 Wednesday, while October feeder futures jumped $2.175 to $256.475.

Fundamental analysis: The supply of market-ready fed cattle supplies apparently remains quite tight, which in turn may force packers to pay up for those cattle in the days ahead despite their desperate efforts over the past two months to gain the edge over feedlot operators. That is, weekly cattle slaughter averaged 6.8% below year-ago levels from early July into late August, and yet the latest reading for steer dressed weights is just two pounds over year-ago and eight pounds over the five-year average. The latter is quite close to the average difference maintained last spring. Today’s midsession reading of $26.24 for the choice/select beef price spread also points to a sustained shortage of choice-grade cattle and beef.

Today’s midday report indicated a few head of cattle changed hands yesterday at $183.78. And while that’s down $2.79 from last Tuesday, it marked a rise of $1.28 from last week’s five-area average. We suspect today’s big futures surge reflects industry expectations for a cash market rebound.

The concurrent feeder cattle rally likely reflected the fed cattle surge, as well as corn market bulls’ limited ability to sustain early gains in that market. 

Technical analysis: Today’s strong cattle rally apparently put bulls in technical command of the October live cattle market, especially with the advance marking a decisive bullish breakout above what is now initial support at the 40-day moving average near $180.82. Moreover, it represented a breakout above the short-term downtrend drawn across its July 20 and August 10 highs (at $185.75 and $183.40, respectively).  Bulls will now be targeting those levels, with the chart formation suggesting the potential for a big follow-through to the upside. Support at the 40-day moving average is closely backed by the extended downtrend line near $180.35, as well as the psychological $180.00 level. A drop below the latter would have bears targeting last Thursday’s low of $179.425, then the August low at $177.625.

Today’s action also strengthened bulls’ ownership of the short-term technical advantage in October feeder futures. The move confirmed support at the 10-day moving average near $254.86, with considerable backing from the contract’s respective 20- and 40-day moving averages near $253.26 and $252.17 as well. Psychological support persists at $250.00. Initial resistance at today’s high of $257.35 is closely backed by the Aug. 28 top at $257.925. A breakout above that point would have bulls targeting the psychological $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: You should have all corn-for-feed and soymeal needs covered in the cash market through September. 

 

 

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