Livestock Analysis | September 13, 2022
Price action: October lean hog futures jumped $3.875 to $95.75, the contract’s highest closing price since Aug. 17.
Fundamental analysis: Hog futures surged even as the cash market extended its late-summer breakdown. The CME lean hog index fell $1.28 to $98.29 (as of Sept. 9), the lowest level since late February, and Wednesday’s quote is expected to drop 62 cents to $97.67. While cash weakness may continue for at least a few more days, futures traders appear to be anticipating a seasonal bounce in hog prices, or at least stability into mid-October (the October futures expire Oct. 14). Monday’s surge in wholesale pork prices may signal a rebound, as pork cutout values jumped $2.84 to $105.71 before falling to $104.77 early today. Today’s futures action suggests pork prices will remain firm or rise further over the short term. Average of hog prices over the past 10 years suggest a forthcoming seasonal rise into mid-October. How large that might be is open to question, but today’s futures rebound strongly suggests the recent cash breakdown has been overdone.
Technical analysis: Today’s action flipped the short-term technical advantage in October hogs to market bulls, especially after the contract topped resistance at the 40-day moving average near $95.06, as well as psychological resistance around $95.00. That area now represents initial support, with likely backing from the Aug. 30 high of $94.40. Monday’s high places additional support near $93.25, with further support marked by the 20- and 10-day moving averages near $92.71 and $92.20, respectively. Look for initial resistance at today’s high of $96.075, then at the Aug. 23 high of $96.975. A breakout above that point would likely have bulls targeting the $100.00 level, then the August high at $101.65.
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 fell 95 cents at $144.80 and near the session low. October feeder cattle lost $2.60 at $180.525 and hit a two-month low.
Fundamental analysis: Cattle futures fell after higher-than-expected consumer inflation sent U.S. equities tumbling and the U.S. dollar soaring. The Labor Department reported the Consumer Price Index rose 0.1% in August from July and 8.3% year-over-year, stronger than expectations for a monthly drop of 0.1% and an annual 8.1% increase. The CPI numbers reinforced views the Federal Reserve will continue to aggressively hike interest rates to tamp down inflation, potentially triggering an economic slowdown that would hurt demand for beef and other commodities.
Traders are waiting for cash cattle trade to develop this week. Steady or steady-weaker prices are expected, but futures traders appear to believe cash prices will soon bottom, as feedlots are current and cattle slaughter numbers are likely to soon decline. Choice beef cutout values early today fell $2.07 to $256.87, a four-month low. Select dropped 85 cents at $234.91. Movement was strong at midday at 113 loads.
Technical analysis: Live cattle futures bulls have a near-term technical advantage. However, more losses in the near term would raise the specter of a bearish double-top reversal pattern on the daily bar chart. Live cattle bulls' next upside price objective is to close October futures prices above solid resistance at the contract high of $147.50. The next downside technical objective for the bears is closing prices below solid technical support at $142.275. First resistance is seen at the August high of $146.25 and then at $147.50. First support is seen at last week’s low of $143.775 and then at $143.00.
Feeder cattle bulls lost the near-term technical advantage, as prices are now trending lower on the daily bar charts. The next upside objective for feeder bulls is to close October futures above resistance at the September high of $187.00. The next downside objective for bears is to close prices below solid support at $175.00. First resistance is seen at $181.00, then at $182.00. First support is seen at today’s low of $179.00, then at $178.00.
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.
