Livestock Analysis | June 22, 2022

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Hogs

Price action: July lean hog futures fell 87.5 cents to $111.85, while August hogs fell $1.475 to $108.325.

Fundamental analysis: Lean hog futures fell for the first session in the past five amid corrective selling following the past week’s rally. Firm cash fundamentals continue to support futures, as the CME lean hog index rose $1.29 today (as of June 20) to $110.45, the highest level since August. The cash benchmark is expected to climb another 29 cents tomorrow. July futures ended 99 cents above today’s CME index, while the August contract’s discount widened to $2.535.

Continued strength in wholesale pork may limit hog futures’ declines. Pork cutout values rose $2.08 early today to $112.94. Movement by midday totaled 145 loads. China will buy another 40,000 MT of frozen pork for state reserves on June 24. Beijing continues to stockpile pork via weekly purchases to boost hog margins.

Technical analysis: Bulls retain a slight near-term technical advantage, though they were unable to generate sustained buying interest after testing Tuesday’s high of $112.925. Upside objectives for bulls include closing July futures above solid resistance at the June high of $114.00. Downside objectives for bears includes pushing July futures below the 50-day moving average around $110.45 and closing a chart gap from $110.075 to $109.925 created with a strong open last Friday.

What to do: Be prepared to extend feed coverage on a pullback to the recent lows.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.

 

Cattle

Price action: June cattle futures fell $1.70 to $136.125, while most-active August dropped $1.325 to $134.925, the lowest close since June 14. August feeder futures dove $2.15 to $173.15.

Fundamental analysis: Cash market weakness seemed to undercut cattle futures, along with sizeable losses in other commodities that suggested inflation concerns are easing. The main reason for live cattle futures declines was weak cash trading in the southern Plains. Although a few Iowa cattle changed hands at $145.50, the bulk of cash trading occurred in Texas, Oklahoma and Kansas at $138.00. To have producers take such low prices after having gotten over $140.00 last week implies considerable pessimism about the short-term outlook.

Beef producers may have anticipated a quick end to retail buying for Independence Day features in the days ahead. Indeed, choice beef cutout values dipped 97 cents to $266.59 early today. Seasonal factors suggest we’ll see sustained beef weakness during the days ahead, with the industry expecting the summer doldrums to be particularly weak amid inflationary times. Talk of a potential recession is undercutting bullish commodity sentiment as well.

Feeder futures fell in concert with fed cattle despite flat corn prices and big losses in soybeans. This seems to reflect worries about the strength of demand. In that sense, the feeder decline may not persist, since deferred live cattle futures are trading at substantial premiums to current cash prices. Those prices offer considerable encouragement to feedlot operators to continue actively buying replacement yearlings. On the other hand, feeder futures are still priced well above the feeder index, now at $164.18.  

Technical analysis: This week’s early losses have reduced the bull’s short-term technical advantage. Today’s low places initial support at $134.875, with strong backing from the 40-day moving average at $134.57 and the 20-day moving average at $134.41. A drop below those levels would have bears targeting last week’s low at $132.45, then $130.00. Today’s failure at the 10-day moving average near $135.97 made that point initial resistance. A move above that level would face additional resistance at the June 17 high at $137.425, then the June 9 high at $137.95.

After seeming to begin a fresh bullish breakout Tuesday, August feeder futures gave back the advance and greatly diminished their short-term technical advantage today. The drop reestablished initial resistance at the 10-day moving average near $173.45. Additional resistance is likely to emerge at today’s high of $175.35 and Tuesday’s top at $176.10, then the June 9 high at $176.875. A move above that point would have bulls targeting the $180.00 area. Look for initial support near the contract’s 20- and 40-day moving averages at $171.48 and $170.79. A close below those points would have bears targeting the $165.00 level.

What to do: Be prepared to extend feed coverage on a pullback to the recent lows.

Hedgers: Carry all risk in the cash market for now.

Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.

 

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