Livestock Analysis | October 6, 2022

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Hogs

Price action: December lean hogs rose $1.275 to $77.775, the contract’s highest close since Sept. 26.

Fundamental analysis: Hog futures gapped higher at today’s open and sustained strong as the market extended a sharp rebound from a recent slump to 10-month lows. Weakness in grain prices and expectations for stability in the cash hog market encouraged buyers. Cash fundamentals, however, remained weak, as the CME lean hog index fell 51 cents to $92.93, near an eight-month low and nearly $30 lower since the beginning of August. Packer submission problems persisted into today and resulted in a lack of a preliminary figure for the hog index for Wednesday. Pork cutout values rose $2.46 early today $101.75. The futures rally boosted October to just 55.5 cents under the CME index, the smallest discount since April and suggesting beliefs the lean hog market overextended its recent sell-off.

USDA today reported net weekly U.S. pork export sales totaling 34,300 MT for 2022, matching the previous week’s total. Sales commitments so far this marketing year are running 18% below the same period last year.

Technical analysis: December lean hogs’ strong open left a gap between Wednesday’s high at $76.75 and today’s low at $77.05. December tested resistance near $77.47 as well as the 10-day moving average at $77.27 and maintained sufficient momentum to hold a close above both levels. Bulls will encounter resistance around $78.43 and again near $80.12. Support levels around $74.82, $73.13, and $71.74 were untouched in today’s session and will remain targets for bears along with the overnight gap area from $76.50 to $77.50.

What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.   

Hedgers: Carry all risk in the cash market for now.

Feed needs: You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.

 

Cattle

Price action: December live cattle slipped 5 cents to $147.875, around the middle of today’s range. November feeder cattle fell 90 cents to $176.425.

Fundamental analysis: Live cattle futures ended mostly lower following narrow-range trade, with nearby October firming amid signs of increased cash cattle trade. Cash action picked up yesterday, with the Monday-Wednesday average slipping to $145.93. However, packers in southern markets reportedly paid $144.00 today, while those in northern markets paid $145.00 to $146.00, steady to firmer compared with last week. Feedlot cattle price performance is proving strong, with animals finishing quicker than expected, which may account for feedlot operators’ apparent willingness to take steady bids from packers, and also why slaughter rates are running above year-ago levels. Continued mild weather may keep this going for a while the market may tighten up dramatically once wet, cold weather arrives.

We still tend to expect sustained cash strength due to seasonally tightening supplies. After surging in mid-September, steer dressed weights dipped from 918 to 915 pounds per head during the week ended September 24. Moreover, the midday quote for the choice-select beef price spread surged to $28.89, emphasizing the relative scarcity of cattle and beef grading choice or better. Concerns about consumer demand are still evident in cattle futures, as indicated by weakness in the deferred contracts, but we still view those as overdone.

Technical analysis: Bulls hold a slight short-term technical advantage in December live cattle, as indicated by bears’ inability to force a sustained drop below initial support at the contract’s 10-day moving average near $147.51 today. A breakdown below that level would like face additional support near yesterday’s low of $146.90, with a followthrough drop then having bears targeting last week’s low at $145.575. The band between today’s high of $148.275 and Monday’s top at $148.70 seemingly represents initial resistance. A bullish breakout would open the door to a test of the contract’s 20- and 40-day moving averages at $149.13 and $149.63, respectively.

November feeders’ setback today seemed to leave the market balanced between bulls and bears, since the close was essentially on par with the 10-day moving average of $176.41. Look for overhead resistance at today’s high of $177.90, while a push above that level would have bulls targeting the 20-day moving average near $179.50, the psychological $180.00 level, then the 40-day moving average at $183.19. Today’s low at $175.75 marks initial support, with a sustained drop below that level then having bears looking to test last week’s low of $174.225.

What to do: Get current with advised soymeal coverage. Be prepared to extend coverage on additional price pressure.   

Hedgers: Carry all risk in the cash market for now.

Feed needs: You have 100% of soybean meal needs through mid-November covered in the cash market. You are hand-to-mouth on corn-for-feed needs.

 

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