Livestock Analysis | March 28, 2022
Price action: April through June hogs posted gains today, while far-deferred contracts ended lower. April hogs firmed 10 cents to $107.575. June hogs firmed 20 cents to $126.05.
Fundamental analysis: Lean hog futures traded weaker early this morning amid pressure from the broad-based risk aversion, but there was enough buying under the market to quickly push futures higher. The strength in nearby lean hog futures in the face of negative outside markets today was impressive and shows the strength of traders’ attitudes.
Fundamental support for hog futures came from firming cash markets. The CME lean hog index was up 75 cents today and is projected to rise another 68 cents tomorrow (as of March 25). The pork cutout value was $3.50 higher this morning, though that was mostly driven by an $18.64 surge in belly prices. Often when one cut firms so sharply in morning trade, the gains aren’t sustained and the cutout ends up lower for the day.
April lean hog futures finished today $4.645 above tomorrow’s cash index quote, signaling traders have plenty of cash optimism built in over the next two weeks. That may limit further upside strength in futures.
Technical analysis: June lean hog futures ran to a new contract high of $126.875 and bulls have full technical control. Despite strong gains over the past week, the contract isn’t overbought based on short-term momentum indicators, signaling the contract could push even higher near-term. Today’s high is initial resistance, followed by a range of $127.30 to $133.90 on the continuation chart. Near-term support is the March 16 high at $122.00 and the bottom of the March 23 gap at $120.225.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
Price action: June live cattle closed down 60 cents at $136.775 and nearer the session high. April cattle closed down 17 1/2 cents at $140.30. May feeder cattle closed down 25 cents at $165.075 and nearer the session low.
Fundamental analysis: Keener risk aversion in the marketplace today pressured cattle futures, as did last Friday’s USDA Cattle on Feed Report that showed a record number of cattle in feedlots as of March 1. A surge of Covid cases in Shanghai, China has prompted Chinese authorities to impose a rolling lock-down of that major city. The specter of the world’s second-largest economy again suffering serious effects of Covid lockdowns spooked raw commodity market bulls to start the trading week, as crude oil led the way with strong losses of over $7.00 a barrel in Nymex futures. A firmer U.S. dollar index that traded back near its recent high also worked against cattle market bulls.
The average cash cattle price last week was $138.95, down 15 cents from the previous week’s average. We suspect this week’s cash cattle trading levels will be close to those seen last week. Boxed beef prices at noon today were firmer, with Choice up $1.02 at $263.66 and Select grade up $1.50. Movement at midday was light at 25 loads, suggesting selective buying by retailers to start the week.
Seasonal factors suggest stronger cash cattle prices during the month of April. However, last Friday’s Cattle on Feed Report showed increased feedlot populations and marketings not being that current may limit the traditional seasonal rally in cash cattle—especially with the current high beef prices at the retail meat counter. Cattle slaughter generally increases from late-winter lows to early- to mid-summer highs, thus the cash market’s tendency to turn lower by late April or early May and remain weak into the summer.
Technical analysis: Live and feeder cattle futures bulls and bears are on level overall near-term technical playing fields amid recent choppy trading. Bulls are still working on price uptrends on the daily bar charts, from the March lows. Live cattle bulls' next upside price objective is to close June futures above solid resistance at $139.00. The next downside technical objective for bears is closing prices below solid technical support at the March low of $130.975. First resistance is seen at today’s high of $137.15 and then at last week’s high of $137.75. First support is seen at today’s low of $135.90 and then at $135.00. The next upside price objective for feeder cattle bulls is to close May futures above technical resistance at the March high of $169.25. The next downside price objective for bears is to close prices below solid technical support at the March low of $159.25. First resistance is seen at today’s high of $166.15 and then at $167.725. First support is seen at $164.00 and then at last week’s low of $163.075.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
