Livestock Analysis | July 10, 2023
Price action: August lean hog futures fell 97.5 cents to settle at $94.175, while nearby July futures fell 20 cents to $98.80.
Fundamental analysis: Lean hog futures continued the recent rejection off the $100 level today despite the surging cash index making a new-move high. Futures continue to consolidate above the June 20 high and under the July 6 high as uncertainty weighs as to how long the delayed seasonal advance will continue. Daily slaughter counts have fallen steadily over the past couple weeks as cash prices continue to rise. There is potential for a pullback in the cash index once slaughter counts rise once again and add additional supply onto the market. Thursday’s quote for the CME lean hog index confirmed a rise of $1.36 to $97.43, the highest since last September. Friday’s preliminary quote came in an additional 72 cents higher to $98.15, which would be a $4.00 premium to August futures, showcasing traders’ beliefs in the seasonal rally coming to an end sooner than later.
Cutout surged in the midday report, led by a $21 leap in belly prices. While a lot of the jump in bellies is likely to be given up once the daily report comes out, the impressive $35 jump in bellies from last week’s low is impressive, nonetheless. The midsession quote of $111.46 would put cutout at the highest level since last August, showcasing the tight supplies due to the declining slaughter over the past couple weeks. Continued strength in cutout will help provide a floor for futures prices in the near future.
Technical analysis: August lean hog futures continued to see corrective selling despite bullish fundamentals, although selling was stifled by support at the June 21-22 highs, coinciding with 10-day moving average support at $93.75. Bulls still maintain the technical advantage, targeting the recent high of $100.75 and a daily close over the key psychological $100 level. Bears are looking to continue recent selling pressure below nearby support, targeting solid support at $90 with additional support at $92.25 on the way.
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 half of your soymeal needs covered for both July and August in the cash market. You are hand-to-mouth on corn-for-feed needs.
Price action: August live cattle rose 20 cents to $177.20 and near mid-range. August feeder cattle gained 82 1/2 cents to $246.25 and nearer the session high.
Fundamental analysis: The live and feeder cattle futures markets were supported today by cash market fundamentals that are still sound, overall. There are expectations cash cattle will trade higher again this week after last week’s cash cattle trade averaged $182.06, up 73 cents from the week prior. Packers were more aggressive with cash bids in the northern market late Friday due to limited market-ready supplies in the region, with the same situation likely to occur this week. The noon report showed Choice grade cutout value down $2.36 to $314.54, while Select gained 83 cents to $286.46. Movement at midday was light at 43 loads. The Choice-Select spread today narrowed to $28.08.
Likely more active grocer buying of beef for features the first weekend in August will likely keep a floor under the beef market in the near term. In recent years when the cash cattle market has hit fresh highs in June, they have commonly moved even higher later in the summer.
The cattle markets are also benefiting from the recent big corn futures market losses due to better Corn Belt rainfall and the big upward revision to USDA’s corn plantings estimate in late June that have significantly reduced the cost of feed. That has prompted better feedlot demand for replacement yearlings.
Technical analysis: The cattle futures bulls have the solid overall near-term technical advantage. However, more selling pressure in the near term would raise the specter of a bearish double-top reversal pattern forming on the daily bar chart for August live cattle. The next upside price objective is to close August live cattle futures prices above solid resistance at the contract and record high of $178.10, basis nearby futures. The next downside technical objective for the bears is closing prices below solid technical support at $172.50. First resistance is seen at $178.10 and then at $179.00. First support is seen at $176.00 and then at $175.00.
Meantime, feeder cattle futures prices hit a contract and record high last week. The feeder bulls’ next upside price objective is to close August futures prices above technical resistance at $255.00. The next downside price objective for the bears is to close prices below solid technical support at $235.00. First resistance is seen at the contract high of $248.85 and then at $250.00. First support is seen at $244.00 and then at $243.00.
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 half of your soymeal needs covered for both July and August in the cash market. You are hand-to-mouth on corn-for-feed needs.
