Livestock Analysis

Posted on Wed, 04/08/2020 - 15:38

Hogs

Advice: We advise livestock producers to extend soybean meal coverage another six weeks in the cash market through the end of May.

Price action: Lean hog futures finished 92 1/2 cents to $2.475 lower through the December contract, with most contracts ending in the lower portion of today’s range.

Fundamental analysis: The hog market was unable to build on gains posted earlier this week as a gap-higher open in many of the contracts failed to trigger followthrough corrective buying. Once this morning’s gaps were filled, fresh sellers emerged. Selling in the lead April contract was somewhat limited by its wide discount to the cash index with four trading days left and just six days until it expires.

April hogs finished today $9.845 below where the cash market is projected for Thursday (as of April 7). That signals traders anticipate more hefty declines in the cash index, which has fallen $5.13 the past two days. The average national direct cash hog price was only 22 cents lower this morning, though end-of-day prices have been weaker than morning values.

Week-to-date slaughter is running 1.6% below week-ago, which is a little stronger than some anticipated given the closure of the Columbus Junction, Iowa plant that accounted for around 2% of national kill levels, and other plant slowdowns amid Covid-19. That suggests hogs may not be backing up as much as feared, though kill weights will provide another key piece to that puzzle. 

Technical analysis: June lean hog futures gapped higher but reversed lower to fill this morning’s gap. Key near-term resistance is 10-day average that was around $56.325 today and the top of the April 2 gap at $57.325. Clearing those levels would hint at a short-term low. Near-term support extends from today’s low at $49.85 to Monday’s contract low at $43.825.

What to do: Get current with feed advice. Hog hedges are not advised unless there’s a sharp upside recovery as futures are below the cash market.

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

Feed needs: NEW ADVICE - Extend soybean meal coverage another six weeks in the cash market through the end of May. You should also have all corn-for-feed needs covered in the cash market through the end of May.

Cattle

Advice: We advise livestock producers to extend soybean meal coverage another six weeks in the cash market through the end of May.

Price action:  April live cattle futures rose the expanded $4.50 daily limit to $92.825 today. June live cattle futures gained $1.875 to $86.675. May feeder cattle futures rose $5.575 to $119.375.

Fundamental analysis: Heavy short covering by speculative traders, especially the big “funds” has been featured the past two trading sessions. Cattle market traders are somewhat encouraged by reports the Covid-19 infection curve is flattening in the U.S. and Europe—even though the death toll in the U.S continues to rise. The White House is developing plans to get the U.S. economy back in action, but that depends on testing far more Americans for the coronavirus than has been possible to date. Researchers are working at full throttle to get more testing and quicker results.

Some light cash cattle action got underway at $105 in Kansas and Nebraska Tuesday, down roughly $6 from last week’s average price. Average slaughter weights have been up sharply from year-ago. Boxed beef prices sharply down today, with Choice declining $3.41 and Select down $3.64. Movement was a modest 75 loads. Packer margins remain elevated at an estimated $300 a head, according to HedgersEdge.com. Traders will be watching Thursday morning’s weekly USDA beef export sales tally.

Technical analysis: Live cattle bears still have the overall near-term technical advantage. However, strong gains the past two days are a clue the market has finally bottomed. A bullish weekly high close on Thursday would strongly bolster that notion. Live cattle bulls' next upside price objective is to close June prices above solid resistance at $95.00. The next downside technical breakout objective for the bears is closing prices below solid technical support at the contract low of $76.60. First resistance is seen at $88.00 and then at today’s high of $89.25. First support is seen at today’s low of $85.60 and then at $85.00.

The feeder cattle bears also still have the overall near-term technical advantage. However, this week’s strong gains suggest a market bottom is finally in place. The next upside price objective for the feeder bulls is to close May prices above technical resistance at $125.00. The next downside price breakout objective for the bears is to close prices below solid technical support at the contract low of $103.62. First resistance is seen at today’s high of $120.55 and then at $123.00. First support is seen at today’s low of $117.55 and then at $115.00.

What to do: Get current with feed advice. For now, we are carrying all risk for fed cattle producers in the cash market with futures sharply below cash.

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

Feed needs: NEW ADVICE - Extend soybean meal coverage another six weeks in the cash market through the end of May. You should also have all corn-for-feed needs covered in the cash market through the end of May.