Livestock Analysis | July 12, 2021
Price action: Lean hog futures finished $1.475 higher in the July contract, which expires on Thursday. The August through February contracts gained $1.90 to $2.50.
Fundamental analysis: July lean hog futures were supported by firming cash hog prices. The average national direct cash price rose 24 cents this morning after being up $2.04 last Friday. But packers are still working with negative margins, so additional cash strength may be limited. July hogs are now nearly $3 above the cash index, so buying in the soon-to-expire contract will also likely be limited.
Reports of additional outbreaks of African swine fever in China’s top hog-producing region Sichuan supported deferred lean hog futures. While the outbreaks are leading to herd liquidation, which will increase China’s near-term pork production, it would also mean the country will likely need to import more pork than previously thought.
In the Supply & Demand Report, USDA lowered its pork production forecasts for the second half of 2021 and next year. USDA didn’t adjust its pork export forecasts.
Technical analysis: August lean hog futures continue to consolidate following the big two-week price drop in June. The contract just closed above the 20-day moving average — the first time that’s happened since June 14. Near-term resistance is the July 1 high at $105.60. Near-term support extends from the 10-day moving average at $101.895 to the June low at $96.50.
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.
Price action: August live cattle closed up 60 cents at $119.825 today. August feeder cattle closed down $1.025 at $158.15 today. Prices closed near midranges today.
Fundamental analysis: Cattle traders were tentative ahead of USDA’s monthly supply and demand report. Higher corn prices in the wake of the report helped to pressure feeder cattle futures today. Live cattle futures saw some corrective upside price action today after recent selling pressure.
While August live cattle are trading below the cash market, the upside in futures is likely limited with wholesale beef prices falling. Today’s noon beef report showed Choice boxes down another $2.28 and Select grade up 77 cents on light movement of 37 loads. We look for steady-lower cash cattle trade this week. Last week’s average cash price was $122.16, down $1.73 from the previous week. With restaurants restocked after reopening in the spring and summer features mostly covered, packers are looking to lower prices to attract better retailer demand.
Today’s cattle slaughter was estimated at 120,000 head compared to 8,000 last Monday (a holiday) and 115,000 one year ago at this time.
Technical analysis: Live cattle bulls have the overall near-term technical advantage but have faded recently. Their 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 $117.50. First resistance is at today’s high of $120.35. First support is at the July low of $118.85 and then at $118.00.
Meantime, feeder cattle futures bulls have the solid overall near-term technical advantage. Their next upside price objective is to close in 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 the July low of $152.20. First resistance is at today’s high of $159.15 and then at $160.00. First support is at today’s low of $157.60 and then at $156.75.
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.
