Livestock Analysis
Price action: Lean hog futures rose sharply, with the July, August and October contracts climbing the initial daily limit of $3. The daily price limit will expand to $4.50 tomorrow.
Fundamental analysis: Lean hog futures surged in a continuation of Friday’s technical bounce amid beliefs the market was extremely oversold following steep declines the previous two weeks. Traders are now waiting for signals from this week’s cash markets.
Direct market carcass values early today ranged from $109.89 to $122. On Friday, carcasses averaged $116.89, down from $122.62 a week earlier, according to USDA reports. Carcass cutout values early today averaged $115.12 on about 151 loads, up $5.08 from Friday. The cutout average dropped nearly 9% last week.
USDA’s Hogs and Pigs report last week indicated that market-ready supplies will be larger than expected through summer, though still down around 1.5%. While slaughter numbers will build seasonally through the second half of the year, the year-over-year decline should be around 3% by fall and winter, based on USDA’s data.
Technical analysis: August futures rose the $3 limit to settle at $104.95, the contract’s highest close since June 22. Chart levels to watch include a small gap in the daily bar chart just above $103.075 and last week’s high at $107.20. Market bears may have their sights set on August’s two-month low of $96.50 reached June 24.
What to do: Get current with feed advice. Be prepared to add to third quarter hog hedges and establish fourth-quarter coverage on a corrective price rebound.
Hedgers: You should have 25% of third-quarter production hedged in July hog futures at $95.375.
Feed needs: Cash coverage for meal stands at 100% for July, 75% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 50% for August and 50% for September.
Cattle
Price action: August live cattle closed down $1.20 at $121.60 per hundredweight and nearer the session low. August feeder cattle closed down $3.20 at $156.35 today, also near the session low.
Fundamental analysis: Strong gains in corn futures today hit the feeder cattle futures market, and that spilled over into selling interest in live cattle futures. Traders quickly moved on from last Friday afternoon’s monthly USDA Cattle on Feed Report that was mostly neutral. Placements were lighter than expected, limiting selling pressure in deferred live cattle futures today.
Cattle traders are waiting for cash markets to develop this week. We look for cash cattle trade this week to be steady-firmer. Any continuation in cash cattle market strength should limit losses in the futures markets. Live steers in top U.S. cattle markets averaged $125.47 per hundredweight last week, according to USDA.
Wholesale beef prices continued their slump at noon today, with choice cutout values averaging $303.16, down $1.40 from Friday. Select grade cutout fell $1.51 at $274.67. There were 48 loads moved at midday.
The cattle industry is closely monitoring weather conditions in the high Plains, with recent record or near-record hot weather and dry conditions likely stressing animals in that region.
Technical analysis: August live cattle scored a bearish “outside day” down on the daily bar chart today. Live cattle bulls still have the firm overall near-term technical advantage. Live cattle bulls' next upside price objective is to close August prices above solid resistance at the contract high of $125.775. The next downside technical objective for the bears is closing prices below solid technical support at $120.00. First resistance is seen at today’s high of $123.20 and then at $124.00. First support is seen at $120.50 and then at $120.00.
Feeder cattle futures bulls also have the firm overall near-term technical advantage. The next upside price objective for the feeder bulls is to close August prices above technical resistance at the contract high of $162.40. The next downside price objective for the bears is to close prices below solid technical support at $152.50. First resistance is seen at the June high of $160.15 and then at $162.40. First support is seen at $155.00 and then at last week’s low of $153.60.
What to do: Get current with feed advice.
Hedgers: Carry all risk in the cash market for now.
Feed needs: Cash coverage for meal stands at 100% for July, 75% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 50% for August and 50% for September.
