Livestock Analysis | April 19, 2022
Price action: June lean hogs fell $1.075 to $121.325, closing nearer the session low after hitting a three-week high earlier.
Fundamental analysis: Hog futures fell on profit-taking and corrective pressure following yesterday’s sharp rally. General weakness in crude oil and other commodities also weighed on hogs, while a surging U.S. dollar stirred some concern over export demand for pork. Still, strengthening cash fundamentals likely will keep a floor under hog futures. The CME lean hog index rose 35 cents to $100.33, the fourth straight daily gain, and the next quote is projected to rise another 18 cents. The five-day rolling average national direct cash hog price was quoted at $97.26. June futures are trading nearly $21 above the cash index. Pork cutout values rose $2.07 early today $111.56, led by gains in bellies. Movement was decent at 142.54 loads.
Grilling and BLT season are just around the corner, which, combined with high retail beef prices, should support hog prices. Other bullish fundamentals include lower hog numbers in the months ahead, based on USDA Hogs and Pigs data, as well as high feed costs that are discouraging herd expansion.
Technical analysis: Hog futures bulls still have a solid near-term technical advantage. The next upside objective for bulls is to close June futures above solid resistance at the contract high of $127.325. The next downside objective for bears is closing prices below solid support at the April low of $112.20. First resistance is seen at today’s high of $123.075, then $124.00. First support is seen at $120.00, then this week’s low of $118.70.
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 77.5 cents to $136.575, while April gained 87.5 cents to $141.35. May feeder futures rose $1.625 to $160.775.
Fundamental analysis: Last week’s cash market advance, along with the wholesale market’s historical pattern of seasonal strength in mid-April, would appear to favor market bulls. But beef prices began the week on a soft note. Choice cutout values fell $1.54 yesterday and rose just 4 cents early today, to $271.12. With the monthly USDA Cattle on Feed report Friday, packers may not aggressively pursue cattle over the next few days.
March feedlot placements are expected to have fallen 7.8% below year-ago levels, to 1.842 million head, based on a Reuters survey. March marketings are seen slipping 1.8% from last year to 2.004 million. The net of those moves (along with “other disappearance”) would put the April 1 large-lot feedlot population at 11.945 million head, up 0.4% higher than a year earlier. By comparison, March 1 inventories were up 1.4% from year-ago. Results that match the forecasts would likely be interpreted as price-supportive, but the low placement estimate also opens up room for a bearish surprise.
While industry expectations point to another modest cash advance this week, cash trading may not be established until after the USDA report. The result of this week’s cash trade, particularly if it drops significantly below last week’s mean, may indicate the seasonal top, posted in late February, is in. An advance would keep open the possibility of topping that high, possibly in early May.
Feeder futures continue trading opposite corn, with yearling values shifting up and down in response to prospective shifts in feed costs during the coming months. Sizeable premiums in deferred fed cattle futures seem to offer strong returns to producers if they can keep their feed costs under control.
Technical analysis: Bulls seem to hold the short-term technical advantage in June live cattle, considering the strong rebound from support at the 40- and 20-day moving averages at $136.11 and $135.97, respectively. Additional support is likely near the 10-day moving average of $135.21, with further backing at the April 8 low of $133.375, then the April 6 low at $132.48. Bears are likely targeting the pivotal $130.00 level. Look for short-term resistance at today’s high of $136.90, then yesterday’s peak at $137.475. A break-out above those levels, as well as the psychologically important $140.00 level, would have bulls targeting the contract high at $143.35.
Bears hold a short-term technical advantage in May feeders, although today’s bounce pushed the contract above its 10-day moving average near $165.19. Resistance at the 20- and 40-day moving averages near $163.19 and $165.13, respectively, looks formidable, although a move above those levels would open the door to a test of the March 29 high at $170.40. Backing support at the 10-day moving average are the lows for the past two sessions of $159.50 (today) and $158.65 (yesterday). A drop below those levels would have bears targeting the April 11 low of $156.85, then the $155.00 level.
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.
