Livestock Analysis | April 7, 2022
Price action: June lean hogs fell 55 cents to $114.15, the contract’s seventh decline in the past eight sessions. April futures rose 30 cents to $99.05.
Fundamental analysis: Lean hog futures resumed the recent decline as cash fundamentals continued to slip. The preliminary CME lean hog index is down another 40 cents to $100.68, a drop of $2.98 over the past six days, but the benchmark is still $1.63 above nearby April futures. Wholesale pork prices surged early today, possibly signaling a pick-up in retail demand, but the market has tended to give up morning gains in the afternoon. Pork cutout values rose $7.79 by midday to $112.16 on movement of about 100 loads.
Net weekly pork sales totaled 41,200 MT for 2022, up 49% from the previous week and up 44% from the prior four-week average. Mexico was the lead buyer at 13,200 MT, followed closely by China at 13,000 MT. During the first two months of 2022, U.S. pork shipments totaled 996.5 million lbs., down 201.5 million lbs., or 17% from the same period in 2021. Through February, U.S. pork shipments to China were down 71% from the first two months last year.
Technical analysis: Bears still hold a technical advantage, though downward momentum from steep declines early this week has abated. June hogs closed under key moving averages, such as the 40- and 50-day, but the lack of sustained followthrough selling suggests a bottom may be forming around this week’s lows. Key support is seen at Tuesday’s low of $112.20, which was the contract’s lowest intraday price since $111.525 on March 8, and further support at the March low of $109.15.
Initial resistance comes in at the 40-day moving average around $117.45, with the contract’s 20- and 10-day moving averages, both around $120.00, offering additional resistance. A close above those levels could lead to a retest of last week’s high at $127.325.
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 slipped 12.5 cents to $134.10, while nearby April edged up 30 cents to $138.00. May feeder futures declined 47.5 cents to $159.475.
Fundamental analysis: After surging early this week, wholesale beef prices have flattened out. Choice cutout values gained 44 cents early today to $271.48, but that was still down 5 cents from Tuesday’s closing quote. Select cutout remains comparatively weak, likely reflecting increasing percentages of lower-grading, calf-fed animals placed last fall coming into the slaughter mix. Calf-fed steers and heifers are also boosting overall slaughter totals on a seasonal basis, which tends to weigh on fed cattle prices through spring and summer. Surging consumer demand for grilling season often offsets that pressure during April, but elevated retail beef prices may be stifling that demand-driven strength this year.
History suggests futures reflect a comparatively optimistic bias. For example, if we assume the late-February cash high at $143.22 marked the first-half 2022 high, the 10-year average decline from the early-year high to the summer low of around $11.00 suggests the latter level will occur around $132.00. June futures are priced about $2.00 higher, while August is almost $4.00 premium to that level. Having the fall 2022 through spring 2023 contracts trading at significant premiums to current quotes is rare. We’re concerned these numbers may be self-defeating prophecies since they may encourage feedyard managers to boost placements and delay marketings in coming months. That’s the formula for a bear market in cattle.
Meanwhile, feeder futures remain vulnerable to developments in the grain and soy sector, particularly to rallies in corn and soybean meal prices. Being price-takers when it comes to such costs, feedlot operators are forced to adjust by reducing bids for replacement yearlings when feed costs rise.
Technical analysis: Bears still hold the technical advantage in June live cattle despite Wednesday’s rebound. That established support at yesterday’s low of $132.475, with backing from the March 10 low of $132.15, then at the March 4 bottom at $130.975. A drop below that level would have bears targeting the $130 level, a point which has routinely proved pivotal to chart direction over the past several years. Today’s action created initial resistance at the high of $134.975, with likely strong backing at the intersection of the 10- and 20-day moving averages near $136.00. The 40-day moving average implies stiffer resistance at $137.15. A breakout above that level would have bulls targeting $140.00 to $141.00.
Bears clearly hold a short-term technical advantage in May feeder cattle. First support is at today’s low of $159.175, with backing from yesterday’s low of $157.70. A close below the latter point would likely have bears targeting the $150.00 level. Resistance is marked by today’s high at $161.10, then at Tuesday’s high at $161.975. The 10-day moving average places additional resistance at $164.25, with the 40-day moving average implying tougher resistance at $167.825. Bulls would be targeting the $170.00 level on a push above those levels.
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.
