Livestock Analysis | September 27, 2023
Price action: October lean hog futures rallied 50 cents before ending the day at $82.125, nearer the intraday low.
Fundamental analysis: Lean hog futures pushed higher on Wednesday, though recent corrective buying is likely to give way as fundamentals continue to deteriorate. The CME lean hog index fell 39 cents to $86.31 today (as of Sept. 25), marking the third straight daily decline and the biggest drop since the Sept. 5 bottom. The preliminary calculation puts the index down an additional 17 cents to $86.14 tomorrow, the lowest level since Sept. 12.
Wholesale pork values continue to show strength below $100.00 despite hesitancy above that level. Gains were widespread aside from moderate losses in hams and bellies. The improved retail outlook is supportive of pork and hog prices, especially with retail beef prices at all time highs. This points to the December future being likely undervalued. The December contract holds over a $23.00 discount to the lean hog index in anticipation of the seasonal downturn that is likely to begin in early October. The tightness of pork inventories showed in Monday’s Cold Storage report and ensuing demand of hams in the holiday season could be a bullish factor that traders are currently overlooking.
Technical analysis: October lean hog futures have been relatively stagnant all week following last week’s breakdown. Prices appear to be forming a bear flag on the daily bar chart, which would indicate further weakness once initial support of $81.50 breaks. Bears are targeting additional support at $80.95, then the psychological $80.00 level. Bulls are targeting a daily close above $83.00, which would negate the bear flag and continue the recent upward trend.
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 futures ended Wednesday having inched up 10 cents to $184.90, while the Deferred contracts declined. October feeder futures tumbled $1.625 to $252.25, with deferred futures posting larger losses.
Fundamental analysis: Pessimism about the cattle outlook persisted Wednesday, thereby seeming to reflect the implications of continued gains in the value of the U.S. dollar and another sizeable drop in the equity indexes. The inflationary pressures indicated by today’s surge in energy prices likely didn’t help the livestock complex. The losses don’t seem to reflect the sustained strength indicated by the cattle and feeder markets in recent weeks, whereas the feeder drop particularly suggests the market has posted a top.
Yesterday’s futures breakdown likely triggered cash market weakness. Widespread selling across both the north and south averaged out to $183.22, down about $1.50 from last week’s five-area average. Choice cutout also dipped below $300.00 Tuesday but rebounded to $300.42 at midsession today. Ultimately, the cattle/beef complex seems vulnerable to further short-term slippage, although underlying supply and demand fundamentals still point to continued firmness. That is, last Friday’s USDA Cattle on Feed report implied the supply of market-ready feedlot cattle remains tight, whereas Monday’s Cold Storage report indicated persistently stout beef demand through August.
Rebounding corn and soybean futures probably caused today’s follow-through selling in feeder futures, since those gains imply increased feed costs faced by the feedlot industry.
Technical analysis: Bulls still own the short-term technical advantage in live cattle futures, especially after bears proved unable to challenge initial support at the October contract’s 20-day moving average near $184.10. That’s backed by support ranging from the September 13 low of $182.58 to the 40-day moving average near $182.35, then the psychological $180.00 level. Today’s high essentially matched initial resistance at the 10-day moving average near $186.00. A breakout above that level would have bulls targeting Tuesday’s high at $187.075, then the all-time high for a nearby contract at $187.45 posted September 19.
Today’s follow-through drop in October feeder futures seemed to shift the short-term technical advantage to the bears, particularly after bulls proved unable to mount a serious test of the pivotal 40-day moving average near $255.47. Today’s high put initial resistance at $254.575. Look for added resistance at the looming intersection of the 10- and 20-day moving averages near $258.50. Today’s low put initial support at $251.625, with likely backing at the psychological $250.00 level. A close below that point would open the door to a test of the August 18 low at $248.05.
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.
