Livestock Analysis | May 9, 2023
Price action: Hog futures seemed to follow the cattle market higher Tuesday, with most-active June hogs climbing $1.10 to $84.40.
Fundamental Analysis: The cash hog market stalled late last week, as indicated by last Friday’s official quote for the CME hog index falling 11 cents to $74.42 this morning. However, Monday’s data improved rather significantly, with yesterday’s preliminary figure rebounding 22 cents to $74.64. That suggests the potential for significant follow-through gains, especially if historical seasonal hog and pork market strength takes hold. That is, hog slaughter typically declines significantly from late April into the Independence Day period, whereas consumer demand for the various grilling cuts (i.e. pork loins for chops, butts for pork steaks, pork ribs and trimmings for brats) tends to surge. That typically powers a big surge in cash hog prices in late spring and early summer. That explains the premium built into June futures. Given the depressed nature of hog and wholesale pork values at this time, the complex has the potential to climb even farther than implied by the summer hog contracts.
Despite the potential for seasonal strength, hog futures traded weakly in early trading, but turned higher in the wake of bullish cattle market strength. We saw no news that might have powered the move. Still, the cattle strength appeared to spur hog buying.
Technical Analysis: Although today’s price action might signal a hog market bottom, bears still very much own the short-term technical advantage in June lean hog futures. Today’s high placed initial resistance at $84.70. And while additional resistance might not emerge until the 20-day moving average near $87.22, added selling is layered from that point up to the 10-day moving average at $87.85 and to the 40-day moving average near $89.47, as well as the psychological $90.00 level. Initial support at Monday’s low of $83.025 is backed by today’s low of $82.725. A close below that point would have bears targeting the $80.00 level.
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 corn-for-feed needs covered in cash through mid-May. You should have all soybean meal needs covered in the cash market through mid-June.
Price action: June live cattle rose $1.50 and closed on the session highs at $163.925. May feeders gained $2.50 amidst corrective buying, closing at $205.925.
Fundamental Analysis: Live cattle futures showed strength today as outside markets were mixed, relieving bulls as concerns of a breakdown are put off for the time being. Cash cattle has been slow to develop so far this week with very little trade taking place with just 35 head in Iowa at $176.00. This is well above last week’s average. Cash prices remain far below futures, leading to questions as to whether today’s bounce was a convergence of cash prices and futures or if the market has found demand at lower prices and a run toward recent highs is in store.
Choice cutout remains well above $300 with the midsession quote coming in at $309.63, up $1.07 on the day. Select rose 93 cents to $286.05, bringing the Choice/Select spread to $23.58 on 58 loads. Despite the recent weakness in futures and cash prices, cutout prices have remained firm, showing persistently robust demand for beef going into Memorial Day.
Technical Analysis: June live cattle futures negated the bear-flag technical pattern on the daily bar chart, much to bulls’ pleasure. Price is nearing resistance on the daily bar chart, a close above $164.00 will negate the recent downtrend with bulls aiming for the contract high of $166.275 with additional resistance coming at $165.50 on the way. Bears want to defend today’s high of $164.15 and break price back below the 10-day moving average at $163.45. A close below that level would have bulls targeting last week’s low of $161.2.
May feeder futures saw explosive corrective buying today as bulls managed to overcome the 40-day moving average near $205.10. Resistance at the 10-day moving average near $206.74 ultimately stifled buyers and will act as an important pivot going into Tuesday’s session. Additional resistance comes in at the April 26 low of $207.70 before stiff resistance at $210.00. Bears want to confirm initial resistance around $206.00 and retest yesterday’s low of $202.00, which will act as first support. Additional support comes in at the psychological $200.00 level.
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 corn-for-feed needs covered in cash through mid-May. You should have all soybean meal needs covered in the cash market through mid-June.
