Livestock Analysis | August 1, 2022
Price action: August lean hog futures fell 20 cents to $120.45, while October futures fell 40 cents to $96.825.
Fundamental analysis: Hog futures fell under modest profit-taking pressure following strong gains last week, though the market remains underpinned by ongoing cash strength. The CME lean hog index rose 84 cents to $121.42 (as of July 28), just $1.26 below last year’s mid-June peak at $122.68. Tomorrow’s index is expected to rise another 45 cents to $121.87, and continued strength this week could push the benchmark past the 2021 peak to the highest levels since summer 2014, when the index topped $133.00. Futures may also gain support if traders continue to narrow the bigger-than-normal seasonal cash decline built into fall- and winter-month hog contracts.
Pork demand appears to be holding relatively well and retailers likely will step up buying soon for Labor Day weekend features. Pork cutout values rose $1.74 early today to $129.08, driven by a gain of nearly $10 in bellies. Movement by midday was strong at 175 loads.
Technical analysis: Hog futures retain a bullish bias despite today’s price softness, with the October contract recovering most of its initial declines and remaining in an uptrend for nearly the past month. Initial support comes in at today’s low of $95.025, followed by the 20- and 100-day moving averages, both just under $94.45. Further support is seen at last week’s low of $92.425. Early strength Tuesday may compel bulls to test Friday’s high at $97.375 and the three-month high at $97.875, posted July 28. Longer-term upside targets include the contract high of $100.825, posted March 31.
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: October live cattle rose 40 cents to $142.625 and nearer the session high. October feeder cattle finished up $1.75 at $185.475, also nearer the daily high.
Fundamental analysis: Live and feeder cattle futures were supported by a drop in corn prices and chart-based buying from the speculators. A big drop in crude oil prices and recent declines in gasoline prices also may be boosting consumer confidence, which could lead to better demand for beef. During July, the U.S. stock market had its best month since 2020, seeming to convey reduced worries over recession.
Cattle futures’ gains were limited by ideas cash prices will trade steady-weaker this week. Packers may use contracted cattle for much of their needs this week, which may lead to another week of limited packer demand. Cash cattle trade last week averaged $139.83, down $1.29 from the week prior and the fourth straight weekly decline. Still, feedlots are current and operators should regain negotiating power once packers have worked through contracted cattle.
Choice beef cutout value at noon today rose $1.26 at $270.50. Select grade rose $1.44. Movement at noon was light at 39 loads.
Technical analysis: Live and feeder cattle futures bulls have the overall near-term technical advantage. Prices are in a choppy, uptrends on the daily bar charts. Live cattle bulls' next upside price objective is to close October futures prices above solid resistance at the July high of $143.775. The next downside technical objective for the bears is closing prices below solid technical support at $139.30. First resistance is seen at today’s high of $142.925 and then at $143.775. First support is seen at last week’s low of $141.425 and then at $140.50.
For feeder bulls, the next upside objective is to close October futures above technical resistance at the February high of $189.00. The next downside price objective for the bears is to close prices below solid technical support at $175.00. First resistance is seen at today’s high of $185.875 and then at the July high of $187.40. First support is seen at today’s low of $184.30 and then at $183.00.
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.
