Livestock Analysis | May 4, 2022
Price action: June lean hog futures rose $2.90 to $105.10, the contract’s first gain in four sessions. Deferred contracts also jumped sharply.
Fundamental analysis: June hogs gained for the first time in four sessions in a corrective bounce from sharp declines over the past two weeks and prospects for stronger retail demand as the summer grilling season nears. An outlook for lower hog numbers this summer is also price supportive. Cash fundamentals remain under pressure, with the CME lean hog index down 44 cents to $101.15, the fifth straight daily decline and a two-week low. Tomorrow’s index is expected to fall another 11 cents. With today’s strong rally, May hog futures expanded the contract’s premium to the cash index to $1.45. Pork cutout values fell 80 cents early today to $104.76 on movement of 150 loads.
Technical analysis: Hog market bears retain a firm near-term technical advantage, but futures are near oversold levels and showed signs of a near-term bottom today. A bearish head-and-shoulders top reversal pattern has largely played out on the daily bar chart for June futures. The next upside objective for bulls is to close June futures above resistance at $105.00, this week’s high at $106.75 and $110.00. Downside objectives for bears includes closing prices below yesterday’s 3 1/2-month low of $101.875 and solid support at $100.00.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
Price action: June live cattle fell 50 cents to $134.825, while August feeder cattle fell 7.5 cents to $176.20.
Fundamental analysis: Live cattle futures fell for a second day in a row as recent weakness in wholesale beef raised demand concern. Choice cutout values rose 15 cents early today to $259.70, after dropping $3.00 Tuesday. While packers are still earning comfortable margins, they’ve been trying to force cash prices lower. That may explain the limited cash trading the first half of this week, as recent strength emboldened feedlots to hold out for higher prices, expecting retailers to boost purchases ahead of the summer grilling season. Early-afternoon reports indicated Southern Plains cattle trading began around $140.00 around midday. Feedlots in the north are reportedly holding out for higher bids, due in part to the relative strength seen in that area lately and to the comparative tightness of supplies in that region.
Deferred feeder futures edged upward, but nearby contracts proved comparatively weak. Sliding nearby fed cattle futures likely weighed on their yearling counterparts, while soybean meal weakness probably offset modest strength in corn futures.
Technical analysis: Bears still hold a technical advantage in June live cattle. The nearby contract again made a run at resistance represented at 10-, 20- and 40-day moving averages in the $135.70-$135.79 range. Fresh resistance is seen at $136.00 after prices failed to surpass Tuesday’s top at $136.275. A breakout above those levels would have bulls targeting resistance in the $136.85 to $138.35 chart gap from April 25, then the April 22 high of $140.00. Today’s low at $134.55 now marks initial support. A drop below that level would have bears targeting last Friday’s low at $132.50, then the psychologically important $130.00 level.
Bears still hold a technical edge in May feeder futures, since the contract again failed to mount a serious challenge of its 40-day moving average at $163.18. However, August feeder futures ended the day on a virtual par with that contract’s 40-day moving average of $176.23. That may open the door to a bullish move, especially if the contract breaks out above resistance at today’s high of $177.50. That would have bulls targeting the April 22 high of $178.23, then the March 29 high at $182.10. Look for support to emerge at today’s low of $174.65, then at the confluence of its 10- and 20-day moving averages near $173.50. A drop below that level would open the door to a test of $170.00.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
