Livestock Analysis | April 21, 2022
Fundamental analysis: Lean hog futures fell for the third consecutive day as demand concerns and slumping chart patterns overshadowed continued strength in cash benchmarks. USDA reported net weekly pork sales totaling 12,900 MT for 2022, down 46% from the previous week, down 55% from the prior four-week average and a marketing-year low. The weekly figures included a net sales reduction of 100 MT to China. USDA projects exports in 2022 will drop 6.2% from last year, partly due to lower Chinese demand.
Continued strength in the CME lean hog index and signs of improving retailer demand, with wholesale pork prices surging, may help hog futures find a bottom. Pork cutout values rose $2.97 early today to $111.46, led by a gain of nearly $12 in bellies. Movement by midday was 119 loads. The cutout average would be the highest daily reading in nearly two months, but the wholesale market often gives back morning gains by the end of the day. The CME lean hog index rose 43 cents today (as of April 19) to a two-week high at $100.93, and is expected to gain another 32 cents tomorrow, which would be the seventh consecutive daily gain. June lean hogs still ended $16.245 above today’s cash index quote.
Technical analysis: Hog futures’ technicals have grown increasingly bearish as June futures closed under the 10-, 40- and 50-day moving averages for the first time since April 11. June futures today dropped to $116.625, the lowest intraday price since $116.25 on April 14, and may have confirmed a “head-and-shoulders” top. Further selling pressure tomorrow could confirm such a peak, paving the way for a test of initial support at the April 14 low, the April 12 low at $115.50 and this month’s intraday low at $112.20. Initial resistance is seen at the 50- and 10-day moving averages at $117.55 and $117.195, respectively.
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 climbed $1.275 to $139.90, the contract’s highest settlement since Feb. 23. April futures rose $1.025 to $144.10. May feeder cattle jumped $2.375 to $164.85.
Fundamental analysis: Live cattle extended this week’s rally to two-month highs behind a strengthening cash market, while feeder cattle climbed as corn futures dropped under $8.00. Some cash have traded as much as $4.00 over last week’s live steer average of $141.02, based on USDA reports. While the cattle market has historically strengthened in April, such a prospect seemed unlikely a couple of weeks ago as cash prices hovered around $139.00. April futures’ advance implies the market could edge up again next week, despite the market’s tendency toward late-month weakness. The cash market now appears poised to top the late-February high around $143.00 and might move even higher if grocers pursue beef aggressively in early May.
Elevated retail prices seem to be stifling demand from domestic consumers, but the latest export data suggests international demand is proving robust. Today’s USDA weekly export sales report indicated 20,965 MT of beef were shipped during the week ended April 14, up from 18,556 MT the week prior and 19,501 MT a year-ago. Moreover, 2022 exports have topped year-ago levels in three of the four weeks since spiking to 41,830 MT during the week ended March 17. This suggests the bullishness built into cattle futures reflects anticipation of vigorous export demand.
June and August futures around $140.00 and $141.50 imply a modest summer decline, especially when the 10-year average indicates a “normal” summer decline from the spring high to the summer cash market low of about $11.00. We’re skeptical over such optimism and watching for hedging opportunities, as slaughter regularly increases substantially from a late-winter low to summer highs.
Technical analysis: Bulls hold a clear short-term technical advantage in June live cattle futures. The move built on yesterday’s close above the March high at $138.525, which now marks initial support. Additional support is likely at the intersection of the 40-day moving average near $136.00, a downtrend line drawn across the contract’s mid-February high at $143.075 and the March top and the contract’s Jan. 11 low at $135.975. A drop below that area would have bears targeting the $130.00 level. Look for initial resistance at the Feb. 3 low of $140.725, then the March 2 high at $141.675. A close above the latter level would have bulls targeting the contract high at $143.35.
Bulls also hold a technical advantage in May feeders after the contract closed well above its 40-day moving average at $164.82. Initial support at that level is backed by its 20- and 10-day moving averages at $162.99 and $161.05, respectively. A drop below those levels would have bears targeting the April 11 low at $156.85. Initial resistance extends from the December low at $165.70, then around the $168.25 area. A push above that level would have bulls targeting the $170.00 level, then $175.00.
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.
