Livestock Analysis | April 5, 2022
Price action: June lean hogs fell $1.80 to $114.35, the contract’s lowest closing price since $112.80 on March 9. April hogs fell $1.775 to $97.675.
Fundamental analysis: Hog futures sank to four-week lows as the steep price downdraft over the past week spurred more technically driven long liquidation. Cash fundamentals continued to erode, with the CME lean hog index down another 22 cents today to $102.41. The projected index for tomorrow is down 75 cents at $101.66. The national direct five-day rolling average cash hog price today was quoted at $102.67. Pork cutout value early today fell 46 cents to $105.89. Hams and bellies had modest losses. Movement was decent at 142.12 loads. Hog market bulls may be hoping last week’s bullish USDA Hogs & Pigs Report can soon put a floor under the eroding cash and futures prices. Warmer spring weather should also prompt better consumer demand for pork as the grilling season is close at hand.
Technical analysis: Recent price action strongly suggests a market top is in place in June lean hogs and more downside price pressure is likely in the near-term. The next upside objective for market bulls is to close June futures above solid resistance at this week’s high of $119.90. The next downside objective for bears is closing prices below solid support at the March low of $109.15. First resistance is seen at $115.00, then $116.00. First support is seen at today’s low of $112.20, then $111.00.
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 futures sank $1.60 to $133.325, the lowest closing price since $132.95 on March 11. May feeder futures fell $3.475 to $159.00, the contract’s lowest close in 10 months.
Fundamental analysis: Anticipation of cash weakness later this week seemed to weigh on April live cattle, with the deferred contracts falling as well. News that significant numbers of cattle had traded around $138.00 yesterday seemed to undercut fed cattle futures, after live steers averaged $139.32 last week. Traders in deferred contracts may be thinking potential weakness this week implies the market holds only modest upside possibilities this month and that the late-February cash high near $143.00 will mark the seasonal peak for the first half of 2022. If so, given the 10-year average decline from such a peak to a summer low of about $11.00, the summer contracts also began looking overpriced. We are in no hurry to jump on the bearish bandwagon at this point, but the potential for further short-term losses has increased substantially.
However, choice beef cutout values rose $5.78 to $273.82 early today, seeming to reflect a strong start of grocer buying for planned features in early May. Sustained strength may have producers demanding higher prices for cattle in the days ahead. Whether packers would be inclined to raise bids in light of this week’s futures weakness is open to question.
Feeder futures responded poorly to current grain and soy strength, especially to the increase in feed costs implied by the bullish breakout in new-crop corn futures. If corn futures keep rising, feeder futures will very likely continue declining as well.
Technical analysis: Bears have a strong short-term technical advantage, with the June contract having posted four consecutive days of losses after having failed at 40-day moving average resistance last week. The 20-, 10- and 40-day moving averages now indicate resistance at $135.87, $136.50 and $137,54, respectively. A rally back above those levels would open the door to a test of the $140.00 level. Today’s low at $133.10 marks initial support, with backing from the March 10 low at $132.15, then the March 4 low at 130.975. Bears are likely targeting the pivotal $130.00 level.
Today’s drop to $159.00 marked the May feeder contract’s lowest close since last June. Look for support at today’s low of $158.075, with additional support likely at the May 7, 2021, low at $156.25, then the June 1 low at $153.00. Bears are likely targeting the $150.00 level. Look for initial resistance at the psychological $160.00 level. Added resistance is likely at today’s high of $161.975, then at the convergence of the contract’s 10- and 20-day moving averages around $165.55.
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.
