Livestock Analysis | July 25, 2022
Price action: August lean hogs fell $1.475 to $117.225, while October futures declined $2.20 to $94.125.
Fundamental analysis: August lean hogs fell for the first session in seven on corrective selling and profit-taking pressure in the wake of the past week’s rally to three-month highs. Some selling interest may have reflected a somewhat bearish USDA Cold Storage Report released late Friday. USDA said nationwide pork stocks at the end of June totaled 541.0 million lbs., down 5.1 million lbs. (0.9%) from May, but much smaller than the average decline of 25.8-million-lb. in June during the previous five years. Pork stocks also surpassed year-ago levels by 99.1 million lbs. (22%) and the five-year average by 12.5 million lbs. (2.3%).
Cash fundamentals remains firm. The CME lean hog index rose $1.18 today to $118.22, a 13-month high, and is expected to gain another 86 cents tomorrow to $119.08. August lean hog futures finished at a $1.855 discount to tomorrow’s cash index (as of July 22). Seller interest should be limited until the cash index signals the seasonal rally has exhausted. Pork cutout values early today rose $1.99 to $127.96, after gaining $3.56 last week and rising near a 12-month high. Midday movement was decent at 147.1 loads.
Technical analysis: Bulls retain short-term technical advantage with August futures in a sharp two-week uptrend and trading above all major moving averages. But the market may face sideways consolidation in coming days unless bulls can push prices above resistance at Friday’s high of $118.90. Further gains may have bulls targeting the April high at $121.25. Initial downside levels to watch include a gap on the daily bar chart between the July 20 high at $115.175 and the July 21 low at $115.375. Further downside targets include the 10-day moving average at about $113.10.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
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.
Price action: Live cattle futures posted slight gains, with the August contract up 37.5 cents at $137.75, the contract’s highest closing price since April 26. Feeder cattle posted sharp losses, with the August contract down $2.25 to $179.30.
Fundamental analysis: Live cattle futures started lower before rebounding to end at a three-month high, though buyer interest was limited. Last Friday’s cattle report data was mostly neutral, though the inventory data signaled a notable reduction in the beef herd and indicated numbers will continue to contract. That was partly offset by slight bigger-than-expected feedlot placements during June, though they were down from year-ago. With the report data now factored into the market, focus will shift to cash fundamentals.
Cash cattle averaged $141.12 last week, down $1.00 from the previous week. Our initial expectation is for steady/weaker cash prices again this week, though active trade may not be seen until late in the week. Wholesale beef prices were strong this morning with gains of more than $1 in both Choice and Select, though movement totaled only 28 loads. Beef demand will remain in a relative lull period until retailers ramp up purchases around the second week of August for Labor Day features.
Feeder cattle futures were pressured by strength in the corn market. A relatively hidden source of pressure may have come from USDA’s upward revisions to July 2021 other heifers (up 100,000 head), steers (up 100,000 head) and calves (up 300,000 head) in Friday’s Cattle Inventory Report, which suggests the feeder cattle supply isn’t as tight as some believe.
Technical analysis: The technical picture for August live cattle continues to strengthen, as the contract poked above resistance at the June high of $137.95, though it couldn’t close above that level. The next level of resistance is the big April 25 gap from $138.75 to $140.275. Bulls likely want to take a shot at filling the gap on this price recovery. The contract found support at the 5-day moving average at $136.465. That will remain initial support, with the 10-, 20-, 40- and 50-day moving average providing additional support in the $136.18 to $134.315 range.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
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.
