Livestock Analysis | June 9, 2022
Price action: June lean hog futures fell 87.5 cents to $106.975. July hogs fell $2.95 to $105.00, a three-week low.
Fundamental analysis: Hog futures extended a recent slump amid beliefs a recent climb in cash fundamentals has peaked. The CME lean hog index fell 32 cents to $107.48 (as of Tuesday). The preliminary cash quote for Wednesday is $107.31, down 17 cents. The summer-month futures contracts’ discount to the cash hog index suggests the cash market has topped out on a near-term basis. Pork cutout value did rebound today, rising $4.43 at $108.90, led by gains in bellies. Movement was 127.80 loads. The five-day rolling average national direct hog price today was quoted at $115.64.
Hog market bulls have been disappointed that pork cuts have not seen increased consumer demand amid the very high beef prices at the meat counter and record-high gasoline prices at the pump. Also pressuring the hog futures market today, USDA reported weekly U.S. pork sales at 16,700 MT for 2022, down 48% from the previous week and down 44% from the prior four-week average.
Technical analysis: Bulls appear to have run out of gas this week as prices have dropped over $5.00 in the July contract, producing serious near-term technical damage that’s inviting the shorter-term, chart-based traders to play the short side of the market. Bears have quickly gained the overall near-term technical advantage. A three-week-old price uptrend on the daily bar chart has been soundly negated in July futures.
The next upside price objective for the hog bulls is to close July prices above solid chart resistance at the June high of $114.00. The next downside price objective for the bears is closing prices below solid technical support at $100.00. First resistance is seen at today’s high of $106.75 and then at $108.00. First support is seen at today’s low of $103.875 and then at $103.00.
What to do: Be prepared to extend feed coverage on price weakness.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed needs covered through mid-June. You are hand-to-mouth on soybean meal needs.
Price action: June live cattle rose 22.5 cents to $137.05 while August cattle slipped 32.5 cents to $137.20. August feeders gained 37.5 cents to $176.025.
Fundamental analysis: USDA-reported live steers averaged about $140.30 through Wednesday morning, up about $3.50 from the comparable week-ago figure and about $2.00 over the mean for last week’s total direct-market activity. That implies yesterday’s big futures surge was fully justified. However, Choice beef early today fell 55 cents to $271.19, which seemed to slow futures’ upside.
Weakness in U.S. equities and crude oil, along with a strong U.S. dollar advance, undercut bullish attitudes as well. In addition, concerns are growing about the housing and construction markets, as indicated by the latest report of mortgage applications at a 22-year low. This doesn’t bode well for the economic outlook. On the other hand, as mentioned in the past, consumer red-meat demand apparently holds up relatively well in recessionary times, so we don’t expect the livestock markets to suffer all that badly if a recession emerges.
Feeder futures ended mixed, something of a victory for bulls, since corn and soybeans posted strong gains. The implied increase in feed costs while fed cattle prospects, as indicated by the mixed close in live cattle futures, might easily have sent yearling prices significantly lower.
Technical analysis: Bulls hold a short-term technical advantage in live cattle, although the lack of upside followthrough in the August contract weakened their position. Initial resistance persists near yesterday’s high of $137.90, with major backing in the April 25 chart gap between $138.75 and $140.275. A move above the latter level would have bulls targeting the contract high at $141.825. Today’s low places initial support at $137.00, but additional support might not appear until the contract retests its 40-day moving average near $135.25. It’s 10- and 20-day moving averages imply additional support at $133.82 and $133.21, respectively. A drop through those levels would again have bears targeting the $130.00 level.
Today’s lack of a bullish followthrough in August feeder futures also diminished the bulls’ hold on the short-term technical advantage. Today’s high places initial resistance at $176.875. A close above that level would have bulls targeting the May 4 high at $177.50, then the $180.00 level. Today’s low puts initial support at $175.60, with backing from last Friday’s high at $174.275. A drop below that point would likely force a retest of pivotal support at the intersection of the contract’s 10- and 40-day moving averages near $171.05. Failure at that point would have bears targeting last week’s low at $164.75.
What to do: Be prepared to extend feed coverage on price weakness.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all corn-for-feed needs covered in the cash market through mid-June. You are hand-to-mouth of soybean meal needs.
