Livestock Analysis

Posted on Thu, 03/26/2020 - 15:27

Hogs

Price action: June lean hogs closed down the daily $3.00 trading limit at $68.75 and the April contract was down $2.95 at $62.90. Futures trading limits expand to $4.50 on Friday.

Fundamental analysis: Lean hog futures traders’ jaws dropped when they saw the weekly U.S.  jobless claims report print a record-high weekly claims number of 3.28 million and knowing next week’s report will probably be just as bad or worse. Worries about sustaining the rally in pork prices and consumer demand combined with recent large hog kills put the bears back in firm control today.

Positive weekly USDA export news on the pork front was ignored today. USDA said 38,600 MT of pork sold for export last week, up 8% from the previous week with Mexico and China the top buyers. Shipments rose to a new high of 48,600 MT, up 12% from the prior four-week average, with China taking 23,000 MT.

Pork cutout values fell another 71 cents today, led by declines in ribs, picnics, hams and bellies. Movement was 196.19 loads. The national hog price was down 19 cents Wednesday.

USDA’s Hogs and Pigs Report after the close today was expected to show all hogs up 3.4% from a year ago on March 1 as the number of market hogs rose 3.5%.

Technical analysis: The hog futures market bears have the firm overall near-term technical advantage and regained power today. The next upside price objective for the hog bulls is to close June prices above solid chart resistance at this week’s high of $74.00. The next downside price objective for the bears is closing prices below solid technical support at the contract low of $66.02. First resistance is seen at $70.00 and then at $71.00. First support is seen at $68.00 and then at $67.00.

What to do: Get current with corn-for-feed advice. With soymeal prices surging, we don’t want to chase the market higher. We are prepared to go hand-to-mouth beyond our coverage through mid-April if prices don’t pull back significantly.  We’ll look to hedge on the next upside recovery in hog futures.   

Hedgers: Carry all risk in the cash hog market for now.

Feed needs: You should have all soybean meal needs covered in the cash market through mid-April and all corn-for-feed needs covered in the cash market through the end of May.

Cattle

Price action: Cattle futures closed sharply lower to limit down and limits will expand to $4.50 on Friday. Feeders cattle limits will remain at $4.50. June live cattle fell the $3 limit to $93.325. May Feeders dropped $3.675 to $125.425.

Fundamental analysis: On Wednesday, cash sales were quoted at $119-$121, up $8-$10 for the week in the south and $10-$14 higher in the north. But reports today that cattle feeders, who have aggressively sold inventory the past three weeks, were selling inventory $5 cheaper today pressured the market. The market’s focus is shifting to whether the $2 trillion emergency aid package will be enough to save the U.S. economy if the virus closure continues beyond the middle of April. U.S. jobless claims shattered the prior record last week, soaring to 3.283 million.

Traders are worried about beef demand with restaurants closed across the nation despite the strong demand at the grocer meat cases. Midday beef prices were lower, with Choice cutouts sliding $1.86 and Select down 65 cents.

Weekly USDA beef export sales were down 12% from the prior four-week average at 14,500 MT, led by new sales to South Korea. China’s Commerce Ministry has stated that the country will expand the import of energy and agricultural products without offering details.

Technical analysis: Forget about the steep discount futures are trading to the cash market. The failure of the early-week rally to take out the 40-day moving average kept the trading programs in a selling mode. The day traders are also pushing this market around with ease as volume continues to fall and open interest is down to the lowest since the market bottomed in 2016.

What to do: Get current with corn-for-feed advice. With soymeal prices surging, we don’t want to chase the market higher. We are prepared to go hand-to-mouth beyond our coverage through mid-April if prices don’t pull back significantly.  For now, we are carrying all risk for fed cattle producers in the cash market.  

Hedgers: Carry all risk in the strengthening cash market for now.

Feed needs: You should have all soybean meal needs covered in the cash market through mid-April and all corn-for-feed needs covered in the cash market through the end of May.