Livestock Analysis | September 8, 2022

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Hogs

Price action: October lean hogs rose $1.05 to $92.125, while deferred contracts ended lower.

Fundamental analysis: October hogs bounced back from an initial tumble to a two-month low and closed near today’s high as traders shrugged off continuing cash market weakness and narrowed the lead contract’s gap with the CME lean hog index. Today’s index fell $1.78 to $101.48 (as of Sept. 6), the lowest since May 23, and tomorrow’s quote is expected to fall $1.22 to $101.48, $9.355 above October futures. The futures’ discount to the index has narrowed sharply this week but still remains unusually wide, which may reflect excess pessimism even with the market beginning a seasonally weak period.

Wholesale pork extended recent firmness, suggesting the market has established a floor after sinking sharply in August. Pork carcass cutout values rose 97 cents early today to $104.12. Hog slaughter so far this holiday-shortened week was estimated at 1.446 million head, compared to 1.915 million the previous week and 1.436 million the same week last year. The industry is operating on a shortened schedule this week, but packers resume a full schedule next week, which may support cash values.

Technical analysis: October lean hogs traded a $3.225 range, ending nearer session highs and giving bulls a bit more of a near-term advantage, technically, and increasing the possibility that a short-term bottom has been established. A close was held above the 10-day moving average at $91.54, with bulls likely targeting the 20 and 100-day moving averages that have nearly converged near $93.77. A break above this level could prove difficult for bulls, but a close above it will turn the tide from a near-term technical perspective and provide impetus to continue higher. Support was tested at both $90.19 and $89.31 today, ultimately holding strong. These levels will continue to stand as support near-term.

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.

 

Cattle

Price action: October live cattle rose 12.5 cents to $144.375. October feeder cattle advanced 45 cents to $184.40.

Fundamental analysis: Live cattle ended mixed, with the October contract managing a modestly higher close despite signs of further weakness in cash prices. USDA early today reported Wednesday’s light cattle trading yielded an average steer quote at $141.42, down about $1.36 from the week prior. In addition, wholesale beef prices dipped this morning, with Choice cutout values falling $2.29 to $259.04. Select cutout fell 72 cents to $236.79. Choice beef rose moderately yesterday, but ideas that the wholesale market is moving lower might be seen as signaling weakening consumer demand and the potential for sustained seasonal weakness. The fact that bears couldn’t force futures lower on a day when the stock indexes and crude oil gained suggests underlying bullish sentiment was too strong. We tend to agree with bulls based on the belief that sustained tightness of market-ready fed cattle supplies, along with improving consumer demand, will push cash prices higher through fall and winter.

Feeder futures rose modestly behind strength in nearby live cattle and losses in grain and soymeal futures. However, feeder futures are carrying remarkably large premiums over fed cattle, especially considering elevated feed costs. In contrast, the ongoing liquidation of cattle herds around the country will significantly reduce yearling supplies during the coming months.

Technical analysis: Bulls still hold the short-term technical advantage in October live cattle. The contract’s 20-day moving average places initial support at $144.25, with strong backing from the confluence of today’s low at $143.775 and the 10-day moving average near $143.71. A drop below that point would face stouter support at the 40-day moving average near $143.29, with a sustained breakdown then opening the door to a test of last week’s low at $142.275. Today’s high marked initial resistance at $144.70, with stiffer resistance likely to emerge at yesterday’s high of $145.50. A breakout to the upside would have bulls targeting the August high at $146.25, then the contract high at $147.50.

The short-term technical balance in October feeders seems flat at this point. Bears couldn’t sustain a drop below initial support at the 10-day moving average near $184.04, with the drop establishing secondary support at today’s low of $183.575. A close below that point would likely have bears targeting the Aug. 29 low of $180.55. But bulls couldn’t force a move above the resistance zone between the contract’s 40-day moving average near $185.03 and the 20-day moving average at $185.32. A successful rise above that level would then open the door to a retest of Tuesday’s high at $187.00, then the Aug. 17 contract high at $190.20.

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.

 

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