Livestock Analysis | May 25, 2021
Advice: We advise livestock producers to cover the final 50% of July needs in the cash market and an initial 25% of September needs in cash. These moves push cash coverage for the third quarter to 100% for July, 50% for August (previous coverage) and 25% for September.
Price action: August lean hogs closed up $2.10 at $113.65 today and near the session high. The June through October futures set new contract highs today.
Fundamental analysis: Strong cash hog prices to start the week combined with weakening feed prices today to boost lean hog futures. Corn futures dropped sharply, as did soymeal futures. Cash hog prices were up another $3.25 on a national direct basis this morning after posting a gain of $2.51 Monday.
Also positive for futures, the pork cutout value climbed another $3.69 at noon on strong movement of 205.53 loads. Bellies and hams led the gainers. Today’s hog slaughter was estimated at 485,000 head compared with 466,000 head last Tuesday and 415,000 one year ago at this time.
Hogs may be heading for a seasonal peak soon, but it will require signs of slower domestic and export demand that are not showing up yet. Frozen U.S. pork stocks climbed 4.2 million lbs. (0.9%) from March to 455.3 million lbs. at the end of April, which was just a fifth of the usual 19.9-million-lb. build during April over the past five years. Pork stocks were 25.5% (156.0 million lbs.) under year-ago levels and 163.8 million lbs. (26.5%) under the five-year average. The pork stocks numbers suggest pent-up consumer demand as Covid-related restrictions ease.
Technical analysis: Bulls have the solid overall near-term technical advantage and have momentum to suggest more upside in the near-term. Six-month-old price uptrends are in place on the daily charts. First resistance is seen at today’s contract high of $114.15 and then at $115.00. The next upside price objective for the hog bulls would be to close August futures above solid resistance at $117.50. First support is seen $112.50 and then at today’s low of $111.80. The next downside price objective for bears would be closing prices below solid technical support at the May low of $104.375.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures. Be prepared to add to third quarter hog hedges and establish fourth-quarter coverage.
Hedgers: You should have 25% of third-quarter production hedged in July hog futures at $95.375.
Feed needs: NEW ADVICE — Cover the final 50% of July needs in the cash market and an initial 25% of September needs in cash. These moves push cash coverage for the third quarter to 100% for July, 50% for August (previous coverage) and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
Advice: We advise livestock producers to cover the final 50% of July needs in the cash market and an initial 25% of September needs in cash. These moves push cash coverage for the third quarter to 100% for July, 50% for August (previous coverage) and 25% for September.
Price action: Live cattle futures finished narrowly mixed from 2 1/2 cents lower to 27 1/2 cents higher through the December contract. Feeder cattle posted gains of $2.35 to $2.55 in the August through November contracts.
Fundamental analysis: Feeder cattle futures were heavily influenced by sharp losses in the corn market today. Even with corn futures well off their recent highs, the market is still very reactive to day-to-day price action in corn, especially on big movement days like today. If corn prices continue to fall, demand for feeders will strengthen, as the fat cattle cash market outlook is strong into 2022.
Live cattle were mildly helped by the strength in feeders, though traders are playing it close to the vest as they await cash cattle activity for the week. Even with June live cattle at a roughly $3 discount to last week’s average cash cattle price, traders are taking a prove-it stance. Steady to firmer cash cattle trade should at least spark some buyer interest, while a disappointing cash market this week shouldn’t have a big negative impact on futures given their sizable discount.
Boxed beef prices continue to charge higher, though that market has traded independent of cash and futures recently. The more critical factor could be slaughter rates, which have picked up the past couple weeks, suggesting packers may need more animals near-term.
Technical analysis: June live cattle futures are holding in the middle of the short-term boundaries at the May 4 low of $112.175 and the May 12 high at $119.425. The 40-, 50-day and 100-day moving averages are all layered above today’s high but below this month’s high. The 10-day and 20-day moving averages are just below today’s low.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures.
Hedgers: Carry all risk in the cash market for now.
Feed needs: NEW ADVICE — Cover the final 50% of July needs in the cash market and an initial 25% of September needs in cash. These moves push cash coverage for the third quarter to 100% for July, 50% for August (previous coverage) and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
