Livestock Analysis | July 11, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: After recently dipping and testing support, hog futures reversed sharply to the upside Tuesday. The expiring July contract surged $2.475 to $101.275, while most-active August leapt $3.40 to $97.575.

Fundamental analysis: Renewed wholesale strength seemed to trigger a fresh surge in hog futures, with today’s big gains projecting sustained cash market strength over the short run. The hog index hasn’t particularly pointed in that direction as the latest gains have fallen short of those seen in the days following July 4. The CME confirmed last Friday’s preliminary figure at $98.15, up 72 cents, while Monday’s preliminary calculation puts it another 51 cents higher at $98.66. The July futures’ close implies sustained strength into the contract’s expiration July 17 (10th business day of the month). Despite the August contract’s upward leap, it’s still priced about $3.50 under July and about $1.00 below the index.

Again, today’s midsession pork quote likely sparked today’s futures strength, with a $16.96 jump in pork belly values leading across-the-board gains; that pushed pork cutout $4.25 higher to $112.20. The noon quote represents its highest level since last August, although it’s far below last year’s top at $131.02. Still, we can probably expect sustained pork strength over the next week or two, since daily and weekly slaughter totals will likely be some of the lowest of the year. Conversely, given the elevated nature of wholesale beef prices, as well as the seeming grocery-industry shift toward pork features, we think consumer demand will hold up relatively well in the short term.

Technical analysis: Today’s action reinforced the bullish short-term advantage in August hog futures, especially with the settlement marking a fresh summer high close for the contract. Look for initial support around the close of $97.45 posted last Wednesday. Also expect strong backing around today’s low of $94.35 since that coincided with the contract’s 10-day moving average near that same level, as well as trendline support drawn across the contract’s June and July lows, now near $94.05. A drop below that area would have bears targeting the $90.00 area. Initial resistance stems from the July 5 high of $98.475, at the psychological $100.00 level, then the July 6 high at $100.75. A breakout above the latter point would open the door to a test of the $105.00 level.   

What to do: Get current with feed advice. Carry all production risk in the cash market for now.  

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

Feed needs: You should have half of your soymeal needs covered for both July and August in the cash market. You are hand-to-mouth on corn-for-feed needs.

 

 

Cattle

Price action: August live cattle futures saw extensive buying that pushed price to a contract high close at $178.825, up $1.625 on the day. August feeder futures rallied 90 cents on the day to settle at $247.15.

Fundamental analysis: Cattle futures reversed early losses and closed on the daily highs, with fats rallying to a new contract high. Cash trade has yet to develop this week. Futures seem to be rallying on traders’ beliefs that limited market-ready supplies will continue last week’s rebound in the cash cattle trade average, which rose 73 cents from the week prior and was weak several weeks prior. Futures have also maintained a discount below cash prices, which has supported futures on recent pullbacks. The tightness of market ready supplies is showcased in the futures market, which shows carry throughout contracts, with October futures settling at $181.55, December settling at $184.925 and February settling at $188.20. This exemplifies the market’s belief that current tight supplies are not expected to be alleviated anytime soon and prices are expected to remain elevated over the course of the next six months.

Wholesale prices at midsession continued recent weakness with Choice falling $1.18 to $312.61 and Select cutout falling $2.09 to $280.24. The Choice/Select spread remains wide at $32.37. Futures have shrugged off recent weakness in cutout values which bodes well for the bulls. How cash trade takes place in the latter half of the week will remain key in determining if the upside is continued or if summer doldrums start to take hold.

The strength seen in feeder futures the past few days despite strength in the corn market is a good sign for bulls. Traders seem to believe that the increased acreage number from the June report will have a lasting impact on reduced feed costs, increasing demand for replacement yearlings.

Technical analysis: August live cattle futures showed strong gains in the latter half of the session as prices reached a new contract high. Bulls remain in firm control of the technical advantage. Price settled above the prior contract high, which indicates acceptance of the breakout and a likely higher high in store. The all-time high in live cattle futures is $182.875 and stands as significant resistance with psychological resistance at $180.00 on the way. Support lies at $175.75, backed by last week’s low of $173.425. Additional selling will target the June 21 low of $168.10.

August feeder futures saw gains once again today as bulls are targeting last week’s contract high at $248.85. Bulls remain in control of the near-term technical advantage. If bulls are able to take out the prior high, additional resistance will stand at the psychological $250.00 level. Bears are looking to take out initial support at the 10-day moving average at $243.70 backed by last week’s low of $240.80, then $240.00.

What to do: Get current with feed advice. Carry all production risk in the cash market for now.   

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

Feed needs: You should have half of your soymeal needs covered for both July and August in the cash market. You are hand-to-mouth on corn-for-feed needs.

 

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