Livestock Analysis | September 7, 2023
Price action: October lean hogs rallied 95 cents on the session to $82.825, though it posted a midrange settlement.
Fundamental analysis: Hog futures traded inside Wednesday’s range though buying from strengthening fundamentals emerged during the session. Bulls were encouraged by the bounce in the cash index. Tuesday’s official quote of the CME lean hog index marked the smallest decline since mid-August, falling 55 cents to $86.01. The index is projected to rise 18 cents to $86.19 as of Wednesday, which would mark the first daily rise in over a month. This spurred futures bulls to press prices higher, though technical resistance continues to stifle gains. Wholesale prices remain steady, falling 16 cents at midsession to $98.17. Movement was the strongest at midsession since August 25, so the mild loss shows persistent grocer demand. Sustained strength in cutout and the recent turnaround in the cash index could quickly put futures bears offsides, as October futures remain nearly $3.50 below current cash prices. This could be the catalyst needed to spur a fresh rally in the futures market.
Technical analysis: October lean hog futures held trendline support and rallied on the open, though losses were pared throughout the remainder of the session. Bulls retain the technical advantage and the upward trendline remains in place on the daily bar chart. Bulls will be seeking to hold $82.50 support Friday, backed by the $82.00 psychological level and $81.50. Bears have defended 200-day moving average resistance at $83.15, which remains a key resistance level. A daily close above would target $84.10 resistance.
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.
Price action: October live cattle led fed cattle futures higher, rising 95 cents to $183.65, but posted a midrange close. October feeder futures jumped $2.40 to $258.875, with September feeders posting a fresh all-time high for a nearby contract at $255.95.
Fundamental analysis: Cattle and beef fundamentals seem weak at this point. For example, light cash cattle trading in northern areas seems to be running $1.00-$2.00 below week-ago levels, whereas very limited action in the South has firmed a bit. And after having recently proved quite stable around $315.00, choice beef cutout has fallen about $4.50 over the past 24 hours. Today’s midsession quote of $310.92 represents a drop of $4.56 since Tuesday’s close. Select values have held up slightly better, with the choice/select spread slipping to $24.44. Also, the surging U.S. dollar likely bodes ill for beef exports.
Nevertheless, live cattle and feeder futures built upon Wednesday’s sharp bullish breakout today. This strongly suggests the industry expects the cash market to firm before the weekend and/or in the days and weeks just ahead. This optimism seemingly stems from the persistent tightness of market-ready supplies in feedlots, as well as ideas consumer demand for beef remains robust despite recent retail price increases. The July results of the Personal Consumption Expenditure index were certainly impressive.
Bullish grain and soy traders’ persistent inability to sustain futures gains in those markets despite recent damage done to those crops is likely spurring fresh optimism in the feeder cattle market. The fresh highs being posted by the yearling contracts seemingly confirm such ideas. However, bulls have to be aware of the fact that the feeder index is still trading a good bit lower, at $247.81. This could handicap bullish efforts in the days ahead.
Technical analysis: Bulls own the short-term technical advantage in October live cattle futures, although their inability to challenge the July contract high of $185.75 reflects considerable resistance at that level. It represents strong backing for initial resistance at today’s high of $184.525 despite the Wednesday-Thursday move seeming to represent the start of a move to much higher levels. A breakout above the former would seem to open the door to a test of the psychological $190.00 level. Today’s low placed initial support at $182.225. A drop below that point would have bears targeting the congregation of the 10-, 40- and 20-day moving averages near $181.24, $180.91 and $180.52, respectively, then the psychological $180.00 level.
Bulls clearly hold the short-term technical advantage in October feeder futures as well, especially after the future set a fresh contract high at $259.475 and posted a strong close. Initial resistance at the contract high is closely backed by the $260.00 level, whereas a move above the latter level would open the door to a test of $265.00. Look for initial support at the former high (from August 28) of $257.925, with backing from yesterday’s top at $257.35. A drop below that point would have bears targeting the 10-, 20- and 40-day moving averages near $255.65, $253.59 and $252.38, respectively.
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.
