Livestock Analysis | September 12, 2023
Price action: October lean hog futures led the nearby contracts higher Tuesday, leaping $2.725 to $85.275, whereas the deep deferred contracts dipped on the day.
Fundamental analysis: The hog index has seemingly stabilized just above $86.00, which in turn appeared to trigger fresh buying today. This is rather surprising since history suggests the index could be moving seasonally higher at this point. Traders are likely expecting an advance in the days ahead. The CME hog index for last Friday was officially quoted at $86.17, down 10 cents from Thursday, this morning, thereby matching yesterday’s preliminary calculation. Monday’s preliminary figure slipped another 4 cents to $86.13.
As pointed out previously, it isn’t uncommon for the cash market to rally from early September into mid-October, but in other years, the late-summer decline continues during the weeks just ahead. We view 2023 as being more likely to see an early-autumn bounce due to low hog weights (which reduce pork production per head and imply comparatively tight market-ready hog numbers and improved consumer demand coming in response to more aggressive pork features in grocery stores). That now seems to be the case, as indicated by the recent surge in wholesale pork values. Pork cutout plunged from $117.21 on July 31 to $92.22 on August 31. But it has sustained the subsequent rebound this week, rising another $1.73 to $101.18 at noon today. This should give packers room to boost their bids for slaughter hogs.
Technical analysis: Today’s rally clearly strengthened the bullish hold on the short-term technical advantage in October lean hog futures. Bulls retook the advantage Monday by forcing a close above the contract’s 40-day moving average near $82.25, with today’s follow-through surge to a five-week high and a high-range close confirming that strength. Look for initial support around Monday’s high of $83.30, with strong backing from the 40-day moving average. A drop back below the latter level would have bears targeting the psychological $80.00 level. Today’s high marked initial resistance at $85.35. Look for added resistance at the August 7 high of $86.075, then the August 1 peak at $86.75. A breakout above that point would open the door to a test of the psychological $90.00 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 all corn-for-feed and soymeal needs covered in the cash market through September.
Price action: October live cattle futures ended the day 7.5 cents lower at $184.15, despite trading as low as $183.05. October feeder cattle futures closed 20 cents lower at $261.25, though deferred contracts saw slight gains.
Fundamental analysis: Cattle futures finished the day around unchanged despite volatile grain trade, as futures traders wait for cash trading to develop this week. Futures remain near Monday’s record high close; it is likely that consolidation will continue until cash trade develops towards the end of the week. Despite the recent break higher in futures, wholesale prices continue to struggle to garner a bid. Choice cutout rose 24 cents to $310.35 while Select fell $1.72 to $283.72, bringing the Choice/Select spread to $26.63. The wide Choice/Select spread continues to affirm the lack of high-quality finished beef, which has kept a bid under cattle prices over the course of this year. The tightness of market ready supplies will keep a bid in cattle futures in the interim, especially as futures traders continue to believe the cash index will turn higher in the coming weeks.
Feeders finished the day mixed, though October futures hit a new contract high intrasession. If recent weakness continues in corn, feeders could continue to see relative strength. Futures are maintaining their premium to the CME feeder index, although last Friday’s official quote rose to $250.42. This marked a fresh all-time high for the index and the first time it’s been over $250.00.
Technical analysis: October live cattle futures struggled against Monday’s high, though losses were limited. Intraday selling efforts were thwarted by initial support at $183.00, further selling pressure would find support at $182.45 then $181.50. Bulls are targeting the record high close of $184.225, then the record high at $185.75.
October feeder futures hit a record high today though they struggled to sustain gains, ultimately closing slightly lower on the session. Bulls retain full control of the technical advantage, though some corrective selling would not be unexpected in the next couple of days. Support can be found at $260.00, $259.25, then $257.90. Bulls are targeting $262.075, the record high, then $265.00.
What to do: Get current with feed advice. Carry all production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
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 September.
