Livestock Analysis | September 6, 2022
Price action: October led hog futures rose $1.075 to $91.10, after falling earlier near a two-month low.
Fundamental analysis: Hog futures rose in a corrective rebound following last sharp drop. Today’s buying may have reflected easing concern over the short-term cash outlook, possibly due to lower slaughter last week. Packers slaughtered 2.35 million head last week, down 55,000, or 2.3%, from the week prior and down 35,000, or 1.4%, from the comparable week in 2021.
Wholesale pork strength may have also encouraged buyers. Pork cutout values rose $3.78 early today to $106.03, a two-week high. Today’s final price may not be up as much as the morning quote, but the strength seems conducive to renewed cash firmness. That clearly hasn’t been the case lately, given the $1.52 drop in today’s CME lean hog index to $104.74, near a three-month low. Tomorrow’s index is expected to fall another $1.48. Still, October futures are $13.64 under today's index with less than six weeks left until contract expiration.
Technical analysis: Bears still hold a short-term technical advantage, but their inability to force a downside follow-through to last Friday’s close at two-month lows suggests their advantage has significantly diminished. Initial support seems likely to emerge around last Friday’s close and today’s opening near the psychological $90.00 level, with backing from today’s low at $89.575. A drop below that point would have bears targeting the July 5 low of $86.825. Initial resistance is marked by today’s high at $91.25, with strong backing from the contract’s 10-day moving average at $91.54. A push above that point would open the door to a test of resistance around August 19 low of $91.90, then last week’s high at $94.40 and later the contract’s 40-day moving average near $95.12.
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 50 cents at $145.05, the contract's highest closing price since Aug. 19. October feeder cattle gained $1.15 at $186.10 today.
Fundamental analysis: Cattle futures rose behind technical followthrough from Friday’s strong close, which offset gains in corn futures and a rally in the U.S. dollar index to another 20-year high. Further price upside may be limited by recent weakness in cash cattle prices. Live steers last week averaged $142.88, down $1.91 from the previous week and the second consecutive weekly decline. This week’s cash cattle trade may develop around Wednesday due to the holiday-shortened trading week. Choice beef cutout values rose 98 cents early today to $260.40, with Select grade up $3.23. The Choice-Select spread narrowed to $18.59 but is still wide for this time of year. Movement at midday was 59 loads.
Labor Day weekend is the unofficial end of the grilling season, signaling slower beef demand. Still, beef packer margins remain in the black and market-ready supplies of Choice-grade beef are tight, which should keep a floor under the futures and cash markets.
Technical analysis: Live and feeder cattle futures bulls have a near-term technical advantage. Live cattle bulls' next upside price objective is to close October futures above solid resistance at the August high of $146.25. The next downside objective for the bears is closing prices below solid support at last week’s low of $142.275. First resistance is seen at today’s high of $145.40, then $146.25. First support is seen at $144.00, then $143.00.
For feeder market bulls, the next upside price objective is to close October futures above resistance at the contract high of $190.20. The next downside price objective for bears is to close prices below solid support at the August low of $180.55. First resistance is seen at today’s high of $187.00, then at $188.00. First support is seen at today’s low of $184.875, then $183.40.
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.
