Livestock Analysis | April 25, 2022
Fundamental analysis: Hog futures were hit with a barrage of bearish news, including sharp losses in cattle futures and worries about export demand as China locks down major cities due to rising Covid cases. The sharp rise in the U.S. dollar index today to a two-year high raised concern that U.S. pork is growing increasingly costly for foreign buyers. Chart-based sellers were also emboldened today as the technical posture of hog futures deteriorated.
USDA’s Cold Storage Report Friday fueled bearishness, as U.S. pork stocks at the end of March totaled 487.2 million lbs., up 7.3 million lbs. from February and defying market expectations for a drawdown. Still, U.S. pork inventories were 79.4 million lbs. (14.0%) under the five-year average. The CME lean hog index is projected to rise another 83 cents tomorrow to $102.50, the highest since March 31. Pork cutout values fell $2.32 early today to $108.96, led by a decline of more than $25 in bellies. Movement at midday was 147.84 loads. The five-day rolling average national direct cash hog price today was $100.86.
Technical analysis: Hog futures bulls still have a near-term technical advantage. However, a bearish head-and-shoulders top reversal pattern has formed on the daily bar chart, suggesting a market top is in place. The next upside objective for bulls is closing June futures above solid resistance at the April high of $123.075. The next downside objective for bears is closing June futures under solid support at the March low of $109.15. First resistance is seen at $116.00, then $117.00. First support is seen at the April low of $112.20, then $111.00.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
Price action: Cattle futures finished well off session lows but still posted sharp losses. June live cattle dropped $3.00 to $135.425, a two-week closing low. May feeder cattle fell $2.575 to $161.30.
Fundamental analysis: Cattle futures had a sharp reaction to last Friday’s Cattle on Feed and Cold Storage Reports, both of which were bearish. The April 1 feedlot inventory was 1.7% above year-ago as March placements didn’t drop nearly as much as anticipated. In addition, March frozen beef stocks were record-large. Along with fundamental pressure, outside markets, chart-based selling and long liquidation weighed on cattle futures.
Cash cattle trade averaged $143.02 last week, up $2.00 from the previous week. While the cash market has been stronger than anticipated the past two weeks, today’s performance in futures limits the odds of additional cash strength this week. But feedlots are unlikely to move cattle at lower prices early in the week, which suggests active cash trade won’t likely be seen until late this week.
Choice wholesale beef prices dropped 97 cents this morning while Select firmed $1.69. Movement was light at just 31 loads. A recent slowdown in movement suggests retailers have near-term beef demand needs mostly covered, which may require packers to reduce prices to move product.
Technical analysis: June live cattle left a big gap from $136.85 to $138.35 on the daily chart. The 10-, 50- and 100-day moving averages all reside in that range. Today’s gap will serve as initial resistance, with additional resistance at last week’s high at $140.00. Today’s low at $134.45 is initial support. Stronger support is at this month’s low at $132.48.
What to do: You are hand-to-mouth on corn-for-feed and soybean meal needs. Wait on an overdue corrective pullback to extend coverage.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You remain hand-to-mouth on soybean meal and corn-for-feed needs.
