Livestock Analysis | July 27, 2022
Price action: August lean hog futures rose $1.625 to $118.60, while October futures surged $2.80 to $96.45, a three-month closing high.
Fundamental analysis: Hog futures extended a month-long upswing, led by the October contract, amid continued support from strength in cash fundamentals. The CME lean hog index rose 35 cents to $119.48 (as of July 25), the highest level since June 2021, and is expected to gain another 25 cents tomorrow. August futures’ discount to the index narrowed to about 88 cents. Smaller near-term hog supplies remain a bullish underpinning for futures, along with signs consumer meat demand remains solid despite high retail prices and worries over recession. But an outlook for expanding supplies and accelerated slaughter later this year is reflected in sharp discounts October and December futures hold to nearby August. Pork cutout values fell $1.19 early today to $125.58, down from a 12-month high posted Tuesday. Movement at midday totaled about 135 loads.
Technical analysis: Lean hog futures retain a bullish posture, with August still in a steep uptrend since the end of June and most-active October settling at a three-month high. August futures’ recent price activity suggests a bullish pennant may be forming on the daily chart, possibly indicating an upside breakout. A push above this month’s high at $118.90 may have bulls targeting the April high at $121.25. Near-term support is seen at Monday’s low of $115.55 and the 10-day moving average around $114.70.
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: August live cattle fell 7.5 cents to $136.80, while October futures fell 5 cents to $142.325. August feeder cattle rose $1.675 to $179.10.
Fundamental analysis: Live cattle futures ended narrowly mixed, with nearby contracts down slightly amid expectations the cash market will extend a three-week slide. Cash prices are expected to trade steady to weaker compared with last week’s $141.12 average, though meaningful activity may not happen until late in the week, as packers appear content to pull from committed supplies and not aggressively pursue slaughter-ready animals. Futures remained underpinned by signs domestic beef demand is holding up reasonably well despite widespread recession concerns. Choice beef cutout values fell 65 cents early today to $268.46, movement by midday was a strong 82 loads and the wholesale benchmark is still up over $4 from the end of June. Still, retailers aren’t at the point of stocking up for Labor Day features, so price upside may be limited.
Technical analysis: Live cattle futures retain a bullish bias, with the August contract still in a month-long uptrend, but upside momentum has slowed slightly and prices may extend a sideways consolidation for the next few days barring a significant breakout higher or lower. Initial support in August live cattle is seen at the 10-day moving average around $136.20, with further support at the 100-day moving average around $135.60. Key resistance at a three-month high of $138.075 posted Monday may cap upside. A push above Monday’s high may have bulls targeting the April 25 chart gap between $138.75 and $140.275.
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.
