Livestock Analysis | April 27, 2023
Price action: June lean hogs fell 17 1/2 cents to $90.10, nearer the session high and hit a three-week high early on.
Fundamental analysis: It was not a bad day for the lean hog futures bulls, after posting stronger losses earlier in the session and following good gains seen Wednesday. Cash hog market fundamentals are improving just a bit late this week. Tuesday’s official quote for the hog index came in at $71.31, up 11 cents from Monday. Wednesday’s preliminary figure slipped 2 cents to $71.29. The noon report showed pork cutout value rose 42 cents at $78.79. Movement at midday was 136.69 loads. Despite high beef prices, pork packers are struggling to move product, which has limited advances in pork cutout value.
USDA reported solid U.S. pork export sales of 54,000 MT for week ended April 20, a marketing-year high. Net sales for the week rose 50% from the previous week and 47% from the four-week average. Shipments of 38,000 MT, also a marketing-year high, were up 11% from the previous week and 12% from the four-week average.
Hog market bulls are anxiously awaiting the expected seasonal rally in hog and pork values as the grilling season is rapidly approaching. The futures market has mostly digested Tuesday’s bearish monthly USDA Cold Storage report that showed ending-March U.S. pork stocks at 533.9 million pounds, up about 12.7 million pounds from Feb. 28, despite the historical tendency for an 18.0-million-pound drawdown during March (as implied by the 10-year average). However, worrisome for hog bulls is larger slaughter levels. Early-April slaughter averaged 3.3% over year-ago levels to suggest supplies will continue running above previous expectations.
Technical analysis: The bears still have the firm overall near-term technical advantage. However, a two-month-old downtrend on the daily bar chart has at least temporarily stalled out. The next upside price objective for the hog bulls is to close June prices above solid chart resistance at the April high of $92.75. The next downside price objective for the bears is closing prices below solid technical support at $84.00. First resistance is seen at today’s high of $91.05 and then at $92.00. First support is seen at today’s low of $88.425 and then at $87.00.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soymeal needs covered in the cash market through May. You should have all corn-for-feed needs covered in cash through mid-May.
Price action: Expiring April live cattle futures surged 92.5 cents to $175.45 Thursday, while most-active June futures rose 62.5 cents to $165.20. April feeder futures went off the board at noon, being unchanged at $202.675. May feeder futures advanced $1.25 to $211.525.
Fundamental analysis: As we have expected, cash cattle prices are proving quite strong this week. USDA reported today the five-area direct market average for Monday-Wednesday reached $178.81, which represents a $1.19 rise from the same period last week and 24 cents over last week’s average. We expect additional gains today and tomorrow. That makes the expiring April future, which goes off the board at noon tomorrow, look significantly underpriced. We expect a sharp Friday morning surge as traders caught short are forced to pay up or face the prospect of having to deliver cattle against the expired contract. June futures at about $14.00 under the latest cash quote also look comparatively cheap, although a seasonal drop will very likely occur before the contract’s late-June expiration.
The anticipated cash strength is based on this week’s continued gains by wholesale beef prices. Choice beef cutout made another for-the-move high at $310.73 at noon today, while the select cuts surged $2.17 to $290.11. The select strength likely reflects buyers getting by with cheap product rather than a comparative shortage, since the supply of select-grade beef is probably more plentiful due to active feedlot marketings of calf-fed animals (which routinely grade select) placed last fall. Having the latest steer dressed-weight reading fall 15 pounds under year-ago reemphasizes the tightness of market-ready fed cattle supplies.
Fed cattle strength combined with corn and soymeal weakness to boost feeder futures, despite the recent feeder index drop to $201.31.
Technical analysis: Bulls clearly retained their short-term technical advantage in the wake of today’s price action. They proved unable to overcome the downtrend line (now at $165.34) drawn across the contract’s recent highs, but a breakout above that point would open the door to a quick test of the April 19 high at $165.925 and the contract high at $166.275 from April 13. A push above the latter level would likely have them targeting $170.00. The 10-day moving average places initial support near $163.48, with backing from today’s low of $163.875. A drop below the latter point would likely cause sellers to test 20- and 40-day moving average support at $163.47 and $160.83, respectively.
Bulls also own the short-term technical advantage in May feeder futures, especially after the contract bounced from initial support at the 10-day moving average near $210.74. Look for additional layers of support at yesterday’s opening quote of $209.075 and the 20-day moving average near $208.00. A close below that point would open the door to a test of the 40-day moving average near $204.59. Today’s high marked initial resistance at $211.925, with a push above that level likely foreshadowing a test of the contract high at $212.775. A bullish breakout would have bulls targeting $215.00.
What to do: Get current with advised feed coverage. Be prepared to extend coverage on additional price pressure.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soymeal needs covered in the cash market through May. You should have all corn-for-feed needs covered in cash through mid-May.
