Livestock Analysis | June 14, 2022
Price action: June lean hogs expired today at $108.45, up 45 cents. July hogs fell 5 cents to $106.625.
Fundamental analysis: Hog futures continued to stabilize following the early-month sell-off but have not displayed the upside impetus that would suggest an uptrend can be sustained. The U.S. dollar’s rally to a 20-year high and a bear market in U.S. stocks continue to burden commodity markets. Bullish factors include high retail beef prices that may push more consumers to cheaper pork cuts during grilling season. A seasonal decline in hog slaughter in the coming weeks may also work to put a floor under the cash and futures markets in the coming weeks.
Still, based on the discounts in July and August hog futures to the cash index, there’s sentiment the cash hog market has put in a seasonal top. The CME lean hog index for Wednesday (as of June 13) is projected at $108.13, up 73 cents. The five-day rolling average for national direct cash hogs is priced at $116.41 today. Pork cutout values early today fell $2.23 to $109.15 on firm movement of 201.64 loads.
Technical analysis: Bears hold a near-term technical advantage. The next upside price objective for bulls is to close July futures above solid resistance at the June high of $114.00. The next downside objective for the bears is closing prices below solid support at $100.00. First resistance is seen at today’s high of $108.425, then $110.00. First support is seen at $105.00, then at this week’s low of $103.525.
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: August live cattle rose 20 cents to $134.075. August feeder futures slipped 2.5 cents to close at $171.30. June
Fundamental analysis: Live cattle posted a modest corrective bounce from Monday’s sharp declines but face limited upside potential amid expectations for weaker cash and concerns a potential recession will hurt beef demand (though our experience suggests red meat demand holds up surprisingly well during recessions, due in part to consumers buying more meat from grocery stores rather than going to restaurants).
Futures’ strength today also reflected reports of light cash trading Monday in northern areas (likely Iowa) around $141.72, up over $1.50 from last week’s five-area average. We look for sustained cash strength this week, due in part to expectations for continued active grocer buying of beef through the middle of next week. Choice cutout values slipped 4 cents early today to $270.50. June futures look cheap compared to the latest cash quotes, as the contract expires in just over two weeks.
Reports also circulated that extreme heat in the Plains may have killed some feedlot cattle in Nebraska yesterday. If those losses prove significant and/or the heat is greatly stressing others in those lots, this could tighten market-ready supplies of fed cattle and boost short-term cash prices even more substantially than indicated by yesterday’s light trading.
Technical analysis: Monday’s breakdown shifted the technical advantage to bearish traders, especially after it sent the August future below its 40-day moving average near $135.00. That now marks initial resistance, with considerable backing in the chart gap between $135.475 and $136.025 created by yesterday’s early dive. A push back above those levels would have bulls targeting last week’s high at $137.95. Today’s low confirmed support at the contract’s 20-day moving average near $133.47. That’s backed by yesterday’s low at $132.45. A drop below that level will again have bears targeting the pivotal $130.00 level.
In feeder futures, bears were unable to force a close below the contract’s 40-day moving average at $170.96, indicating a roughly equal balance with bulls. The 40-day moving average clearly represents solid initial support, with backing from yesterday’s low and the contract’s 20-day moving average near $169.57. A drop below that level will have bears targeting the May 31 low at $164.75, then the contract low at $162.80. Today’s high and failure at the contract’s 10-day moving average put initial resistance at $172.98. If bulls can fill Monday’s chart gap between $173.75 and $174.025, they will then be targeting last week’s high at $175.55.
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.
