Livestock Analysis | September 26, 2023

Livestock Analysis
Livestock Analysis
(Pro Farmer)

Hogs

Price action: Hog futures stabilized in the wake of recent losses, with nearby October futures edging up 10 cents to $81.625 while the deferred contracts slipped.

Fundamental analysis: Concerns about the economic outlook seemed to weigh on the financial markets again Tuesday. Traders clearly expect the Fed to remain hawkish toward inflation prospects, as reflected by the U.S. dollar continuing its upward march. Conversely, recent equity market weakness persisted as traders and investors worry about the economic impact of a likely government shutdown this weekend. The energy markets shook off the bearish atmosphere, whereas today’s gold market drop to one-month lows suggests widespread commodity sector pessimism. Cattle futures also tumbled, but hog futures proved relatively stable. The latter probably reflected continued optimism about seasonal firmness, as well as the discounts already built into the nearby contracts.

As indicated by yesterday’s preliminary calculation, the CME officially stated the hog index for last Friday at $86.70, down 38 cents from Thursday. Monday’s unofficial reading dropped another 39 cents to $86.31, which leaves today’s October futures close discounted about $4.50 below the cash equivalent price. Meanwhile, noon pork cutout rose 95 cents to $99.81 despite a dip in pork belly values. The rise was mainly powered by significant gains in ham and picnic values.

The wholesale strength wasn’t terribly surprising given Monday’s USDA Cold Storage report, which indicated U.S. pork stocks rose less than 1.0 million pounds last month, whereas the five-year average implies a monthly rise of about 11 million. Having ending-August ham stocks fall about 10 million pounds under year-ago and 26 million under the five-year average suggests holiday ham supplies will fall well below normal in the absence of strong storage over the next two months. This should prove supportive of hog and pork prices in the coming weeks.

Technical analysis: The short-term technical advantage seems largely balanced at this point, with bears possibly holding a slight edge due to the October contract closing modestly below its 40-day moving average near $82.13 for the third straight session. Initial resistance at that level is backed by the looming conjunction of the 10- and 20-day moving averages near $83.05. A close above that point would open the door to a retest of last week’s high at $86.125. Initial support extends from today’s low at $81.40 to yesterday’s bottom at $81.05. A drop below the latter point would have bears targeting the psychological $80.00 level, then the Aug 16 low of $77.75.

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. 

 

 

Cattle

Price action: October live cattle futures fell $2.175 to $184.80 Tuesday and closed near session lows. October feeder cattle futures closed $4.95 lower to $253.875, the lowest level since September 5.

Fundamental analysis: Cattle futures fell sharply on Tuesday, led lower by feeder cattle futures. Monday’s USDA Cold Storage Report was supportive, so much of today’s loss can be attributed to floundering outside markets, such as the S&P 500 stock index that has fallen over 250 points (5.5%) from the peak on Sept. 15, which is coincidentally the day that October feeder cattle futures peaked as well. A sinking bond market has also been pressuring financial institutions which can have lasting impacts on less liquid markets as well. Last week’s cash average shows the continued demand for cattle, but the volume of purchases could hinder demand this week, which is backed up by the lack of trade thus far this week.

Wholesale beef prices struggle to garner a bid, though losses have been kept in check by the $300.00 level that capped the downside in late July/early August before prices turned higher. A failure below $300.00 would indicate likely sustained weakness. Choice prices fell 28 cents at midsession to $301.20, while Select fell 72 cents to $279.73. Movement was moderate at 77 loads.

Technical analysis: October live cattle futures saw selling pressure on the open that sustained throughout the session. Bulls retain the technical advantage, though much more sustained weakness will draw doubt into that claim. While the daily drop is large, last week’s low of $184.65 stifled selling pressure and will remain significant support into Wednesday’s session. Any selling pressure much below this level likely accelerates to the $180.00 support zone, though $183.00 could provide some relief. Bulls are targeting initial resistance at $185.50, backed by $187.00, then the all-time high of $187.45.

October feeder cattle suffered significant chart damage Tuesday as bears are taking hold of the technical advantage. Prices sold to the Sept. 5 support zone marked by that day’s low of $252.85. Any selling below that level targets $250.25 support, then the Aug. 18 low at $248.05. Bulls are aiming to rebound back above resistance at $255.60, the 40-day moving average that limited nearly all losses since the contract’s inception. This resistance is backed by $256.65, then $258.825.

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. 

 

 

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