Livestock Analysis | June 1, 2023
Price action: June lean hogs rallied 97.5 cents today to settle at $83.55, despite deferred contract weakness, as evidenced by the August contract closing $1.825 lower to $80.025.
Fundamental analysis: Hog futures finished the session mixed after the past few days of strong gains, unable to piggyback gains from the surging cattle market. Traders seem to be unconvinced that the recent strength will last, as deferred futures saw sustained weakness. The cash index did end its recent streak of losses, with Wednesday’s preliminary figure coming in 10 cents higher to $79.63. Tuesday’s quote was confirmed at $79.53, down 55 cents from the Friday-Monday combined value.
Cutout has continued the recent trend of higher midsession quotes and lower settlements, falling from $86.55 at midsession to $85.27 yesterday afternoon. Today’s midsession quote came in higher once again, albeit weaker than the last few days at 35 cents higher to $85.62. Gains were balanced across the board, apart from loins which fell slightly. Traders appear to be unconvinced that grocers will change the recent norm of using beef to get customers in the store and using pork as a profit center. Until grocers begin to price pork competitively and demand improves, the prolonged weakness seems likely to continue.
Technical analysis: June lean hogs closed today’s session higher despite deferred contracts closing sharply lower. Price struggled to overcome May 8-12 support turned resistance at $83.40 but cleared it in the latter half of the session, giving confidence to bulls that this rally is more than a “dead-cat bounce”. What is concerning is deferred contract weakness; the divergence seen today between nearby and deferred contracts is unlikely to last long. Today’s high tagged the downtrend line from the April 28 high to the May 17 high. A break of this initial resistance at $84.025 would be a technical breakout of the recent steep downtrend. Additional resistance stands at $84.85, quickly backed by the psychological $85.00 level. Initial support comes in at $83.40, backed by the 20-day moving average at $83.075.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through mid-June.
Price action: Live cattle futures rocketed higher Thursday, with the nearby June contract soaring $5.775 to $174.925 and most-active August leaping $4.70 to $172.425. August feeder futures jumped $2.475 to $241.65.
Fundamental analysis: Continued wholesale beef strength seems to be translating into resurgent gains in the live cattle and futures markets. Packers bought a few hundred head of cattle at $178.48 Wednesday, up a bit from last week, but they apparently threw in the towel on negotiations today. Anecdotal reports indicate they were paying $4.00 to $7.00 over last week’s average. They were probably encouraged to do so by sustained wholesale strength, where choice cutout rose another $1.23 to $307.07 at noon today, with select cutout inching up one cent to $287.16. Choice cutout is now only $4.37 under its May peak at $311.44. As pointed out in the past, beef cutout usually hits its annual high about 10 days before Memorial Day, so this strength is rather extraordinary.
Packers may also be paying up simply because they need the cattle, and market-ready supplies remain tight. Today’s midsession quote for the choice-select spread at $19.91 points in that direction, as does the latest reading on steer dressed weights. Today’s weekly USDA report stated that figure at 885 pounds per head during the week ended May 20. And after matching the year-ago figure at 891 pounds during the week prior, this latest reading is three pounds under the comparable 2022 figure. Weights underwent a sharp decline last spring, so the diminished annual difference is not alarming.
The grain/soy complex’s strong rebound from yesterday’s lows apparently limited today’s gains in feeder futures despite the huge fed cattle gains. The fact that feeder futures are trading at drastic premiums over the latest reading for the CME feeder cattle index (at $207.18) may also be limiting futures advances.
Technical analysis: Bulls clearly own the short-term technical advantage in August live cattle futures after today’s bullish breakout to fresh highs. In fact, the June contract’s fresh high at $175.00 is only $2.70 below the April contract’s all-time peak at $177.70. This looks like the start of a ‘blow-off top’, with the potential to carry the market still higher. The June contract’s $175.00 top is the most likely target for bulls in August future, with the next objective being the April peak and the $180.00 level also looking like a plum target. The psychological $170.00 level likely represents initial support, with a drop below that level potentially opening the door to a retest of the contract’s previous high at $167.75.
Bulls in the August feeder contract also own the short-term technical advantage, although today’s price action looks much more consistent with recent gains. Today’s high marks likely initial resistance at $242.05, with a secondary target being the psychological $245.00 level. That is also consistent with the all-time feeder futures high at $245.20 from October 2014. We must also point out that the weekly continuation chart suggests feeder futures are also blowing off to the upside, with the potential for a major peak in the near future. Look for initial support in the range between Tuesday’s high of $238.55 and yesterday’s low of $237.30. Secondary support seems likely to emerge between today’s low of $236.575 and the 10-day moving average near $235.96.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through mid-June.
