Livestock Analysis | May 25, 2022
Price action: July lean hog futures fell $1.10 to $107.95, the second straight daily drop. Deferred futures also ended lower.
Fundamental analysis: Lean hog futures ended lower after initial gains were met by profit-taking, spurred in part by early weakness in today’s wholesale pork trade. Pork cutout values fell $1.06 early today to $107.18, led by a drop of nearly $14 in bellies. Broader market concerns continue to linger over expensive meat curtailing consumer demand with the summer grilling season ahead. Strengthening cash fundamentals may limit further futures weakness for the time being. The CME lean hog index rose 95 cents today to $103.03 (as of May 23), the fifth consecutive daily gain and the highest reading since March 30. The next quote is expected to jump 84 cents to $103.87.
Technical analysis: Bullish momentum stalled as July hogs posted a second straight daily decline, but recent price action still indicates the market has established a near-term low and begun a delayed seasonal rally. A push above this week’s high in July futures at $111.125 may have bulls targeting resistance at the 40- and 50-day moving averages at $112.40 and $114.10, respectively. Support comes in at this week’s low at $107.625 and the 10-day moving average at $106.395.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through May and all corn-for-feed needs covered through mid-June.
Price action: June live cattle fell 42.5 cents to $132.30, while August feeders dipped 20 cents to $167.95.
Fundamental analysis: Cash cattle trading picked up Tuesday, with significant numbers of steers trading at $137.81, down from last week’s live steer average of $140.25. Choice beef cutout values fell 35 cents early today to $263.30, which may have encouraged selling in futures. We suspect recent wholesale strength has the potential to carry into early June, but we don’t see futures holding significant upside potential despite sizeable discounts to current cash quotes due to the cash market’s decided downward tendency during late spring and early summer. Also, weak meat demand, as was emphasized by Monday’s USDA Cold Storage report, implies limited potential for rallies.
Technical analysis: Bears retained the short-term technical advantage in nearby June live cattle. Bulls again attempted to force a move above initial resistance at the contract’s 20-day moving average near $133.02 but had to watch as it turned lower late in the day. Today’s high at $133.55 marks secondary resistance, with stiffer resistance persisting at the 40-day moving average, now at $134.56. Initial support at the 10-day moving average at $132.25 is backed by today’s low of $132.025. A drop below that level would have bulls targeting Monday’s low at $131.20, then the pivotal $130.00 level. A follow-through decline would open the door to a test of $125.00.
Bears were also able to retain their technical advantage in August feeder futures. The midsession failure added to resistance at the 20-day moving average near $169.80 with the daily high at $170.25. A breakout above those levels would have bulls targeting the 40-day moving average at $171.96, then the May high at $177.50. Today’s low placed initial support at $167.80, with backing from the 10-day moving average at $166.56 and yesterday’s low at $166.15. A drop below that point would have bears targeting Monday’s contract low at $162.80, then the psychological $160.00 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.
