Livestock Analysis | August 8, 2022
Price action: October lean hogs rose $1.90 to $100.30, a lifetime-high close for the contract. Nearby August hogs rose 97.5 cents to $121.80, the highest close for a nearby contract since June 2021.
Fundamental analysis: Solid cash market fundamentals and a bullish near-term technical posture fueled buying interest in hog futures, suggesting still more upside in the near term. Today’s CME lean hog index was up 48 cents at $122.09 (as of Aug. 4) and only 59 cents below last year’s high. The preliminary quote for Tuesday (as of Aug. 5) is down 17 cents at $121.92. The five-day rolling average national direct cash hog price today was quoted at $126.09. Pork cutout values early today rose $3.95 to $128.98, led by gains in bellies. Movement at midday was decent at 146 loads.
While we expect hog supplies to run 1% to 2% under year-ago levels, a seasonal increase in slaughter may cap the upside in the cash and futures markets in the coming weeks. The 10-year averages suggest weekly hog slaughter rises about 125,000 head per week between the first week and last week of August. The averages show around an $11.00 decline in hog prices from early August to mid-October and about $22.00 until the end of the year. Still, the higher beef prices at the meat counter at present may keep a floor under the cash hog and futures markets, as consumers may purchase more pork over beef to save money, especially if recession worries persist.
Technical analysis: Hog futures bulls have a solid near-term technical advantage and gained more power today, with October prices in a five-week-old uptrend on the daily bar chart. The next upside objective for hog bulls is to close October futures above solid resistance at the contract high of $100.825. The next downside price objective for bears is closing prices below solid support at the August low of $93.825. First resistance is seen at the contract high of $100.825, then $102.00. First support is seen at $99.00, then today’s low of $98.075.
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 35 cents to $144.225, the contract’s highest closing price since May 4. September feeder cattle surged $2.225 to $185.65, the highest close since Feb. 23.
Fundamental analysis: Feeder cattle led live cattle higher amid expectations last week’s firm cash trade will continue and an outlook for tighter animal supplies. Feeder cattle futures were supported by weakness in corn. Traders appear cautiously optimistic cash cattle prices will work higher after last week’s unexpected strength. USDA-reported live steers averaged $140.84, up from the previous week’s average of $139.83 and the first gain in four weeks. But packers continue to rely on previously purchased cattle, contracted and formula-based animals to fill out their slaughter schedules, which could again limit demand for negotiated animals.
Wholesale beef bounced back from last week’s drop near six-week lows, with Choice boxes rising $1.79 to $266.41 on movement of 50 loads by midday. Last week’s price dip may encourage retailers to step up purchases as they prepare for Labor Day weekend features.
Technical analysis: Bulls retain an advantage in live and feeder cattle futures, with October live cattle extending a month-long rally. Upside targets include the May high at $145.10 and a gap on the daily bar chart created in late April. Initial support is seen at the 20-day moving average of $142.92 and last week’s low at $141.875.
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.
