Livestock Analysis | May 10, 2022
Price action: June lean hogs rose 27.5 cents to $101.575, the contract’s first gain in three sessions. July hogs fell $1.225 to $102.975, near a four-month closing low.
Fundamental analysis: Light short covering lifted June hog futures in the wake of sharp recent losses. Hog futures otherwise remain burdened by eroding charts, weak cash markets and as bearish outside forces, such as a strong U.S. dollar. The CME lean hog index rose 18 cents today (as of May 6) to $101.09, the first gain in nine days. Sustained gains in the cash index may signal the start of a seasonal upturn that is normal for this time of year. The next index is expected to be unchanged at $101.09. The minimal premium June futures hold over the index is unusual, suggesting traders remain pessimistic about prospects for a cash rebound. Pork cutout values early today fell $2.09 to $102.30, led by declines in ribs and bellies. Movement at midday was 154.60 loads.
Bulls are holding out hope that grilling season and lower hog marketings this summer will prop up the cash and futures markets. Still, Americans generally prefer grilling beef and chicken compared to pork. However, high beef prices at the meat counter may steer some consumer demand more toward cheaper pork cuts.
Technical analysis: Hog futures bears have a firm near-term technical advantage. Prices are in a five-week-old downtrend on the daily bar chart. The next upside objective for bulls is to close June prices above solid resistance at last week’s high of $107.525. The next downside objective is closing prices below solid support at $95.00. First resistance is seen at this week’s high of $103.35, then $105.00. First support is seen at $100.00, then $99.00.
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 $1.15 to $132.40, the contract’s lowest closing price since Nov. 1. August feeder futures fell $2.375 to $172.85.
Fundamental analysis: Cattle futures extended recent declines on expectations for cash market weakness in weeks ahead, as indicated by the large discount recently built into nearby June. In contrast, despite generally bearish cash market expectations, the five-area average live steer prices edged up again, to $143.42, last week. The grocery industry’s historical pattern of buying beef aggressively through the first half of May makes us think cash prices will move even higher this week, then become vulnerable to traditional weakness through the balance of May and in much of June and July.
Choice cutout values rebounded strongly Monday but slipped 96 cents early today to $257.33. Early-May beef weakness is unusual this time of year, since grocers usually buy beef aggressively for features over Memorial Day weekend and beyond. Recent weakness suggests poor consumer demand amid elevated retail beef prices. This is one reason we don’t disagree with the general bearishness built into live cattle futures. In fact, while we expect a sizeable cash decline by early summer, we harbor some suspicions that market has fully anticipated the seasonal decline.
Technical analysis: June live cattle futures posted an early followthrough from Monday’s strong rebound, but bears reasserted their dominance later in the session. Bulls couldn’t sustain an early push above initial resistance at the contract’s 10-day moving average near $133.93. Stiffer resistance will likely emerge between the contract’s 20- and 40-day moving averages at $135.50 and $135.73, respectively. A breakout above that level would have bulls targeting the April 24 chart gap between $136.85 and $138.35, then the April 22 high at $140.00. Initial support is marked by today’s low of $132.05, with backing from Monday’s low of $131.025. A drop below that level would open the door to a test of the pivotal $130.00 level.
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.
