Livestock Analysis | June 7, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: August lean hog futures fell $1.4 and settled at $83.1, while expiring June futures fell 60 cents to $87.70.

Fundamental analysis: Lean hog futures were unable to break above yesterday’s high in today’s rangebound session. Profit taking limited gains as there was insufficient support to continue the recent bull run as the cash index has largely lagged futures gains. The expiring June contract remains well above cash prices, June futures expire next week and remain over $4 above cash prices. While Tuesday’s preliminary quote of $83.04 came in $1.17 higher than Monday’s confirmed 69 cent rise to $81.86, gains over a dollar have been the exception rather than the norm. Generally, when cash hog prices rise seasonally as slaughter dips in early summer, the cash index will increase over a dollar per day. This year, that has not been the case. This relative weakness continues to weigh on futures prices as traders realize the premium over cash had risen to relative extremes. If Tuesday’s gain becomes more standard, futures will have a larger foundation to rise on in the coming weeks.

Pork cutout at midsession rebounded some of yesterday’s $4.08 loss, but prices remain in line with the past 5-day average. Noon pork utout rose 21 cents to $85.93 with prices mixed among products. Belly prices have leveled after rising over $20 on Monday then giving up nearly all of that gain on Tuesday. Loads came in at 174.64, still elevated as grocers are purchasing stocks for upcoming Father’s Day and Independence Day specials. Pork features in the coming weeks could provide much needed demand to lift hog/pork prices in the interim as beef prices continue to soar.

Technical analysis: August lean hog futures spent the entirety of the session within yesterdays, bulls unable to take out yesterday’s high and bears unable to break below the 20-day moving average. These levels, $84.85 and $83.00, respectively, will remain important levels going into the latter half of the week. The recent downtrend has broken and bulls are in control of the short-term technical advantage. Bulls want to overcome initial resistance at $84.85 before challenging $86.00, the mid-May support zone, which is quickly backed by the 40-day moving average at $86.15. Bulls are looking to defend initial support at $83.00 before challenging last week’s resistance, now support at $82.20. Further selling will encounter support at $80.00.

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.

 

 

Cattle

Price action: Cattle futures surged to fresh records in early Wednesday trading, but turned lower by the close. The expiring June contract settled down 82.5 cents at $179.00, while most-active August tumbled $2.30 to $173.20. Nearby August feeder futures plunged $4.15 to $239.10.

Fundamental analysis: Despite having the USDA confirm much greater Tuesday cash trading at the $190.00 level and fresh wholesale strength, cattle futures turned decidedly lower as the session passed, with low range closes suggesting the contracts have peaked. Tuesday’s USDA report of cash market activity indicated about 1,800 fed steers had changed hands at $190.00 in light Monday trading, but today’s report stated that over 10,000 head had duplicated that feat in Tuesday’s cash market action. Moreover, after vaulting higher Tuesday, today’s midsession report on wholesale activity showed choice cutout had surged another $2.37 to $323.77. Select cutout climbed another $1.29 to $300.73. These are the highest quotes for both since September 2021. We suspect they will continue rising for at least another week, probably two, as grocers gather inventories to back up planned beef features over the Father’s Day and Independence Day weekends. Given that possibility and the packing industry’s need to meet that demand, beef cutout values could challenge their late-summer 2021 highs of $348.03 and $319.59, respectively. One also has to wonder if packers will be forced to pay even more for fed cattle next week, with the $200.00 level not outside the realm of possibility.  Conversely, today’s bearish futures reversal could signal that the cash market will peak this week.

Despite fresh grain weakness today, feeder futures turned sharply lower. One might be tempted to blame renewed soybean meal strength, but the possibility of a top in the fed cattle market almost surely triggered the selling spilling over into the yearling market. The fact that the feeder index is still far below nearby futures (despite surging $10.00 since late last week) may also have exaggerated the futures drop.

Technical analysis: Bulls still own the short-term technical advantage in August live cattle futures, although today’s bearish ‘outside day’ suggests a potential reversal. Look for initial resistance near Monday’s high of $174.425, with strong backing from yesterday’s high of $175.95. That’s backed by today’s fresh contract high of $178.10. Today’s low essentially matched solid support extending from last Thursday’s high of $172.50, along with the lows of the three previous sessions. A close below that point might open the door to a sharp sell-off, with support seeming unlikely to emerge above the 10-day moving average of $169.62. Further losses would have bears targeting the 40-day moving average near $164.30.

Bulls still hold the short-term technical advantage in August feeder futures as well, with the daily low largely coinciding with the 10-day moving average (at $238.55 and $338.86, respectively) as an initial support area. The contract’s respective 20- and 40-day moving averages place added support near $235.02 and $230.96. Look for initial resistance at last Friday’s and Monday’s lows of $240.70 and $241.025, respectively, with today’s new contract high marking tough resistance at $245.18. That essentially matched the all-time feeder market high of $245.20 from October 2014.

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.

 

 

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