Livestock Analysis | September 22, 2022
Price action: October lean hogs fell 30 cents to $94.125, the contract’s lowest closing price since Sept. 12, while December futures fell 77.5 cents to $85.675.
Fundamental analysis: Lean hogs fell to the lowest levels in over a week on followthrough pressure from Wednesday’s lackluster close and tumbling wholesale pork prices. The CME lean hog index fell 40 cents to 97.96 but Friday’s quote is expected to gain 5 cents to $98.01. Pork cutout values rose $4.00 early today to $104.35, fueled by a $20.57 jump in bellies. Movement by midday was strong at nearly 178 loads. Wholesale pork remains near four-month lows with packers cutting prices to keep product moving amid reduced retailer interest. Earlier today, USDA reported net U.S. pork sales at 28,972 MT for the week ended Sept. 15, up 16% over the previous week, with Mexico accounting for over half of the total. Pork shipments were pegged at 1.045 MMT for the year, down 21% from last year’s pace.
Packers continued to ramp up slaughter. This week’s estimated slaughter through today totaled 1.929 million head, up 12,000 head over the previous week and up 55,000 head from the same period last year.
Technical analysis: October lean hogs traded a $1.35 range, and ultimately continued to descend as bears currently possess the near-term technical advantage with a close below the 10-day moving average at $94.945 as well as the 40-day moving average at $95.10 for the second consecutive session. Strong resistance will likely continue to stand at these levels, along with $95.625 and $96.825. Support at $93.775 was tested but proved steady as it held into the close. However a breach through the level will have bears targeting the 100-day moving average at $93.54, in addition to the 20-day moving average at $93.24.
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 $1.025 to $144.85, the contract’s lowest closing price since Sept. 14, while October feeder cattle tumbled $1.25 to $177.975.
Fundamental analysis: Recent weakness in wholesale beef prices and concerns over a potential global recession weighed on cattle futures. Choice beef cutout values on Wednesday dropped under $250.00 for the first time since April 2021 but edged up slightly early today, but that seemingly did little to encourage futures buyers. The futures drop seemed overdone, especially after USDA reported the Monday-Wednesday five-market cash average had climbed to $144.90, a $2.17 increase over the week-prior figure. Moreover, the recent surge in cattle slaughter, which has averaged 2.8% over year-ago levels during the past four weeks, implies the supply of market-ready animals in feedlots is tightening.
USDA early today reported net weekly U.S. beef sales of 15,200 MT for 2022, primarily for China (6,200 MT, including decreases of 200 MT) and Japan (3,200 MT, including decreases of 500 MT). While the sales figure may appear poor, last week’s shipments total was the largest in three weeks and the sales figure was the largest since the second week of August. We suspect recession fears were behind the drop, but still argue recessionary times aren’t necessarily bad for red meat demand.
Feeder futures extended a recent decline behind spillover weakness from live cattle. We suspect increasing numbers of calves and yearlings are being forced out of Southern Plains pastures and onto the market by the drought in that region.
Technical analysis: Bulls still hold the short-term technical advantage in October live cattle futures. Today’s low places initial support near $144.80, with nearby backing from the contract’s 20- and 40-day moving averages near $144.58 and $144.29. A drop below the latter point would have bears targeting the August 31 low of $142.28, then the psychological $140.00 level. Look for initial resistance at the 10-day moving average near $145.45, then the daily high at $145.95. A rally beyond that point would again have bulls targeting Tuesday’s high at $146.775, then the contract high at $147.50.
Bears increased their short-term technical advantage in October feeder futures, with the drop establishing support at the daily low of $177.375. A follow-through decline would open the door to a retest of the contract’s July 11 low of $176.25, then the psychological $175.00 level. Initial resistance at today’s high of $178.975 is backed by the psychological $180.00 level, then the contract’s 10-, 20- and 40-day moving averages at $181.22, $182.64 and $184.31, respectively.
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.
