Livestock Analysis | August 17, 2022
Price action: The October contract led gains in lean hog futures, surging $1.475 to $98.05 after recovering from an early slump near a two-week low
Fundamental analysis: Lean hog futures initially extended Tuesday’s sell-off but found support and fresh buying interest to post a strong rebound. While seasonal cash cycles suggest a downturn in the late August-early September time frame, partly reflecting lower consumer demand as the summer grilling season ends. But recent hog slaughter implies supplies are not rising nearly as fast as anticipated. Slaughter so far this week totaled 1.396 million head, 10,000 below the same period last week and 23,000 head fewer than the same week last year. The weekend kill may be key to the weekly total, but the numbers indicate hog slaughter is not increasing at the pace it normally does in mid-August.
USDA’s National Pork Carcass Cutout value increased by $2.38 to $123.53 early today, led by a gain of nearly $19 in bellies. Tomorrow’s CME lean hog index is expected to decline another 44 cents from Monday’s official figure at $121.06, the fifth drop in the past six sessions.
Technical analysis: Bears were unable to extend losses into today’s session as bulls proved they are willing to hang tough. October futures maintained a close above the technically significant 20-day moving average around $97.59 but were not able to breach the 10-day moving average at $99.30; that will likely act as resistance for the bulls in an attempt to sustain the advance. Last week’s high of $101.65 will likely prove the next level of resistance. An extended effort by the bears will find support at the 40-day moving average, near $94.92 and once again at the July 26 low of $92.425, then at the psychologically significant $90.00 level.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.
Price action: August live cattle rose 45 cents to $141.75, while most-active October gained 17.5 cents to $145.85, the contract’s highest close since April 22. September feeders jumped $1.65 to $187.125, the highest close since Feb. 18.
Fundamental analysis: Live cattle futures extended Tuesday’s surge as the cash market for fed cattle continued showing strength, as indicated by the Monday-Tuesday cumulative price for fed steers at $147.21, up $1.21 from the week-ago figure. Those numbers likely reflect quotes from northern areas, but that early strength, along with the ongoing futures advance, will make it extremely difficult for packers to force producers to take steady, much less lower bids. The wholesale market is also proving quite firm, as indicated by the midsession quote for choice beef cutout at $265.50. Moreover, the spread between choice and select-grade beef values widened to $26.94, once again indicating the supply of market-ready fed cattle remains extremely tight. This bodes well for the late-summer price outlook for both fed cattle and feeders.
Feeder futures led the way higher. Their surge partially reflected the strength in fed cattle prices, but a significant portion also arose from the grain/soy complex. That is, while corn and soybean futures exhibited modest strength, another day of sizeable wheat losses seemed more dominant to market observers. Feeder futures are still acting quite well despite their premiums to the feeder index, now quoted at $179.35. Anticipation of seasonal grain/soy weakness, as well as bullishness toward the fed cattle outlook, probably accounts for the premiums built into feeder futures.
Technical analysis: Bulls still hold a short-term technical advantage in October live cattle. Today’s low places initial support at $145.175, with strong backing from the 10-day moving average near $144.44. Look for additional support at Monday’s low of $143.675 and at the 20-day moving average at $143.46. A drop below those levels would have bears targeting the pivotal 40-day moving average at $141.75. Today’s action left the market slightly below resistance at the top of the April 25 chart gap at $145.975, with today’s high of $146.25 marking additional resistance. Bulls are likely targeting the April 22 contract high at $147.50; a breakout above that point would open the door to a test of $150.00.
Bulls are still dominating action in September feeder futures as well. Today’s action placed the high and the likely first line of resistance at $187.775. That will be backed by the contract high of $188.25. A breakout above that point, which would represent a six-year high, would have bulls targeting $190.00, $195.00, then $200.00. Initial support at today’s low of $184.50 is backed by the 10-day moving average near $184.25, then the 20-day moving average at $183.12. A drop below that point would have bears targeting the 40-day moving average at $180.46.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.
