Livestock Analysis | April 13, 2022
Price action: April lean hogs edged up 27.5 cents to $99.90, while June futures led deferred contracts lower, losing 87.5 cents to $117.60.
Fundamental analysis: Persistent cash market weakness continued weighing on hog futures. Monday’s CME index quote dipped 53 cents to $99.10, and the preliminary figure for Tuesday slipped another 11 cents to $98.99. Bulls may be disappointed since the traditional spring cash market rally regularly begins well before mid-April. The index appears to be bottoming, indicated by firmness in the April contract (which expires at noon Thursday). Bulls may also have been encouraged by the midday wholesale report, which quoted pork cutouts up $5.28 at $112.08.
Ultimately, summer hog futures trading well below comparable summer 2021 levels, despite expectations for a 3% to 4% annual reduction in spring hog supplies, imply pessimism about the spring demand outlook. U.S. pork exports could fall far below year-ago levels due to China’s roaring recovery from the 2018-19 outbreak of African swine fever. Bears also seem to expect a significant drop in domestic consumption due to elevated retail pork prices. We believe the pessimism is misplaced, especially on the latter point, since summer live cattle futures reflect a modest seasonal setback over the spring and summer, despite expectations for increased cattle supplies.
Technical analysis: Bulls own a slight technical advantage in June hog futures, since the market has strongly rebounded from last week’s lows in the $112.20 to $113.40 range. Those now mark secondary support below initial support at the 10-day moving average near $116.60. A break below those levels would have bears targeting the March low at $109.15, then the $100.00 level.
Conversely, bulls couldn’t prevent June from closing back below its 40-day moving average near $117.82 after having pushed above it Tuesday. Initial resistance at that level is backed by the 20-day moving average at $119.25. A bullish breakout above the latter point would have bulls targeting the contract 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 rose 57.5 cents to $136.875, the highest closing price since March 31. May feeder cattle rose $1.025 to $161.95.
Fundamental analysis: Short covering and bargain hunting boosted cattle futures, although prices did back off from session highs as the corn market rallied to contract highs. Still, the cattle futures markets’ ability to post gains in the face of rising corn futures prices is impressive.
Firmer cash cattle prices and recent gains in wholesale beef prices also worked in favor of the cattle futures bulls today. Some cash cattle traded Tuesday around $139 in the southern Plains, around $1 higher than last week. Reports at midday today said light trade was occurring at firmer prices, with the strongest prices in the northern market. Choice grade cutout values rose a penny at $273.46 at midday. Select was down a nickel. Movement by midday was decent at 87 loads.
Rising inflation pressures and reduced feedlot supplies in reaction to soaring feed costs, as well as a stabilized U.S. stock market, are all bullish elements for the cattle markets that will at least put in floors under the markets in the coming weeks.
Technical analysis: Live cattle futures bulls and bears are back on a level near-term technical playing field but the bulls have momentum. Live cattle bulls' next upside objective is to close June futures above solid resistance at the March high of $138.525. The next downside objective for bears is closing prices below solid support at the March low of $130.975. First resistance is seen at $137.50, then $138.525. First support is seen at $136.00, then $135.00.
Feeder cattle futures bears have a near-term technical advantage but now appear exhausted. The next upside objective for the feeder bulls is to close May futures above resistance at $166.05. The next downside objective for bears is to close prices below solid support at this week’s low of $156.85. First resistance is seen at today’s high of $163.575, then $165.00. First support is seen at $160.00, then Tuesday’s low of $158.75.
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.
