Livestock Analysis | May 11, 2022
Price action: June lean hog futures fell 72.5 cents to $100.85, the contract’s lowest closing price since Jan. 18. July futures led declines with a drop of $1.425 to $101.55.
Fundamental analysis: Hog futures extended a sharp, three-week slide, ending near four-month lows as slumping wholesale pork prices fueled concern over demand. Pork cutout values have dropped near three-month lows amid lackluster movement, driving worries that elevated retail meat prices and high inflation in general are curbing consumer buying just ahead of the summer grilling season, typically a time of firm demand. Pork cutout values rose 51 cents early today after sinking $4.20 Tuesday to just above $100.00. Heavy bearish sentiment overshadowed signs of stabilization in the cash market. Today’s CME lean hog index (as of May 9) was unchanged at $101.09 and tomorrow’s quote is expected to rise 17 cents. Nearby futures have shifted to a discount to the index, 16.5 cents at today’s close, which is unusual for this time of year and illustrates overall bearish sentiment.
Technical analysis: Bearish momentum strengthened today after June futures dropped under $100.00 for the first time since Jan. 18. A close under $100.00 in June futures tomorrow could have bears targeting $99.00 and the January intraday low at $95.03. Initial resistance is seen at this week’s high of $103.35, followed by the 10-day moving average around $104.45, then $105.00.
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 gained $1.175 to $133.575. August feeder cattle fell $1.85 to $170.00, the contract’s lowest closing price since April 29.
Fundamental analysis: Live cattle futures climbed for the second day in three, posting a high for the week, but faded amid mixed signals from the cash market and ongoing concern over beef demand. Cash cattle prices in southern markets were around steady Tuesday, but northern markets are showing signs of weakness.
Wholesale beef prices continue to languish around eight-week lows, contrasting to the usual seasonal strength reflecting retailers scaling up purchases ahead of the summer grilling season. Choice cutout values fell 22 cents early today to $255.02. Upside potential for cattle futures appears limited, especially if wholesale prices continue slipping and cattle slaughter expected to increase in coming weeks.
Elevated retail prices remain concerning for the cattle industry. USDA reported the national average retail price for steaks fell 8 cents from March to April, but the April average of $9.701 per pound was up 12% from the same month in 2021. Price of “all other uncooked beef” rose 21% annually last month. Consumers can’t or won’t spend that aggressively with beef prices rising so sharply.
Technical analysis: Bears maintained a short-term technical advantage despite today’s gains in June live cattle. The contract settled just below the intersection of the extended February-March downtrend line and the March 8 low of $133.575, which remains initial resistance. Today’s high marks additional resistance at $134.875, which in turn is backed by the 40-day moving average near $135.65. A breakout above that point would have bulls targeting the April 25 chart gap between $136.85 and $138.35, then the April 22 high at $140.00. Tuesday’s low at $132.05 remains initial support, with backing from Monday’s low at $131.025. Bears would then set their sights on the pivotal $130.00 level if they could force a close below the latter level.
In feeder cattle, the technical advantage remains with the bears. Initial support stems from the August daily low at $169.30, but bears are almost surely targeting the April 29 low at $167.325, then the $165.00 level if they can develop fresh downward momentum. Resistance is layered from today’s high at $171.50 to the contract’s 10-, 20- and 40-day moving averages at $173.02, $173.27 and $175.20.
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.
