Livestock Analysis | August 8, 2023
Price action: Expiring August hog futures rose 57.5 cents to $102.10 Tuesday, while most-active October slid 25 cents to $84.575, posting a midrange close.
Fundamental analysis: Although the traditional late summer surge in hog supplies, as well as diminishing pork demand, are looming large at this point, hog futures remain well supported. Much of that strength reflects the various contracts’ discounts to current cash values. As always, forthcoming supply and demand are key to the outlook. It was rather surprising to see last week’s relatively low hog slaughter. That is, the weekly total of 2.338 million topped the comparable year-ago figure by just 3,000 head (0.1%) and represented a weekly drop of 54,000. The low total was particularly surprising since it was being measured against the year-ago result when several packers, as usual, gave their workers a floating holiday on the first Monday in August (8/1/2022). They did so again yesterday (8/7/23), which explained yesterday’s year-to-year decline of 48,000 head (10.5%). They might make up for the slowdown this weekend, but it seems likely this week’s kill will fall significantly short of year ago, thereby raising doubts about recent conclusions that third quarter hog supplies will easily top year-ago numbers.
We think pork demand will also hold up well in the days and weeks ahead, due largely to the apparent reluctance of grocers to pay up for beef. If that continues, it would strongly suggest they won’t actively feature beef over Labor Day weekend, which in turn implies they’ll feature pork more aggressively than they did through the first five months of the year. Pork belly prices tanked this morning, pulling pork cutout down $2.90 to $112.41. If sustained this afternoon that may indicate BLT season is over (as far as grocers are concerned). But we suspect the values of the other cuts will prove relatively steady. As implied by Monday’s preliminary figure for Friday, the hog index was officially stated at $105.04 this morning, with yesterday’s preliminary calculation coming in another 46 cents lower at $104.58, meaning the August future is priced $2.48 under cash with expiration looming next Monday (8/14).
Technical analysis: Bulls retain the short-term technical advantage in October hog futures, especially after bears proved unable to sustain the early drop below initial support at the 10-day moving average near $84.29. They also couldn’t force a real test of secondary support at the 20-day moving average near $83.68, much less challenge pivotal support at the 40-day moving average near $81.93. Still, they would be targeting the psychological $80.00 level if they were to penetrate the latter level. Conversely, bulls couldn’t overcome initial resistance at yesterday’s high of $86.075. That’s backed by last week’s high of $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 soymeal and corn-for-feed needs covered in the cash market through mid-August.
Price action: October live cattle fell 52.5 cents before settling at $180.9, near the mid-point of today’s session. October feeder cattle led the complex lower, falling $1.675 before settling at $251.225, though it closed well off intraday lows.
Fundamental analysis: Live cattle futures succumbed to selling pressure for the second straight day as price consolidates following last week’s rally, though price remains within spitting distance of contract highs as the fundamental situation remains bullish. The recent push in the five-area cash average to the second highest weekly figure ever alongside a stagnant cutout market will continue to pressure packer margins, which are seen as losing triple digits, according to Drovers.com. The calculation uses the cash average, so contracted cattle likely helped margins last week, but purchased volumes remain light and packers need cattle in order to satisfy commitments to grocers for Labor Day specials, though that uptick in demand is fleeting. Trade thus far this week is virtually nonexistent, though it is coming in stronger than last week. Cash cattle appears to want to make a run to the June all-time high as feedlots continue to hold out for higher prices.
Cutout at midsession showed slight gains, though Choice continues to hang out near the $300 area without much direction. Choice cutout firmed 94 cents to $302.43 at noon today, while Select rose $1.97 to $276.98, narrowing the Choice/Select spread to $25.45. Movement was in line with the recent average at 77 loads. So far, it seems that grocers do not have much interest in purchasing beef for the upcoming Labor Day weekend, though volume could begin to come in the latter half of this week.
Feeder cattle succumbed to weakness amidst a surging grain corn market. The feeder cattle index continues to show firm strength as prices remain near all-time highs.
Technical analysis: October live cattle futures dipped but price remains well supported with the bulls retaining full control of the technical advantage. Recent weakness can be chalked up to profit-taking and consolidation. Price was supported by the 10-day moving average today at $180.74 with firm psychological support at $180.00. The string of candles on the daily bar chart from July 25-July 31 indicate additional support at $179.5, further selling would target $177.25. Bulls are targeting initial resistance at $183.15, quickly backed by $183.50. Bulls are ultimately targeting the contract high at $185.75.
October feeder cattle saw corrective selling after making a new contract high yesterday. Bulls still remain in full control of the technical advantage. Price was largely supported by the 20-day moving average at $251.09, which will remain support. Additional selling would find support at $248.2, then $248.00. Bulls are targeting resistance at $253.20 before facing psychological resistance at $245.00, ultimately targeting the contract high at $256.25.
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 soymeal and corn-for-feed needs covered in the cash market through mid-August.
