Livestock Analysis | July 14, 2022

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Hogs

Price action: The expiring July hog contract (which goes off the board at noon tomorrow) edged up 42.5 cents to close at $114.925. The deferred contracts turned lower, with most-active August sinking 92.5 cents to $109.575.

Fundamental analysis: The July futures advance strongly suggests the lean hog index will reach that level when Friday’s official quote is published next Tuesday. Given the strong gains posted by the August contract the two previous sessions, traders apparently expect a portion of current strength to persist for another month or so, although the August futures discount to July is now rather substantial at $5.35.

Still, there is considerable reason to be optimistic about short-term hog prospects, especially when one looks at the ongoing wholesale market surge. Pork cutout jumped another $2.63 to $120.91, thereby marking yet another fresh high for 2022. Active grocer buying of bellies and butts apparently helped power today’s gain, although a sizeable drop in ribs partially balanced that out. Given hog slaughter and pork production likely near annual lows, we would be reluctant to call a top on the wholesale market at this juncture. Conversely, supplies could start edging upward next week, then accelerate upward beginning in the second week of August. When combined with diminished consumer demand for most cuts after Labor Day, the seasonal supply surge is a big reason the fall contracts trade at steep discounts to summer prices.   

Technical analysis: Bulls still hold the technical advantage in August hog futures. Indeed, we would point out that today’s setback filled the chart gap created by Wednesday’s gap opening to the upside. Today’s low places initial support at $109.125, with strong backing from the contract’s 10-, 20- and 40-day moving averages bundled into the $107.64 to $106.77 area. A breakdown below that zone would have bears targeting the contract’s June low at $100.25. In contrast, a push above overhead resistance extending from today’s high at $111.05 to the July 7 high of $111.75 would open the door to a substantial follow-through, with bulls likely targeting the $115.00 level in short order.

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.

 

 

 

 

Cattle

Price action: Cattle futures came under pressure Thursday, with August live cattle falling $1.475 to $135.40 and August feeders tumbling $1.90 to $178.90.

Fundamental analysis: Despite persistent wholesale strength, which saw choice cutout bounce 19 cents to $268.24 after having dropped 46 cents at Wednesday’s close, cattle futures turned downward today. That probably reflected a sizeable setback in Northern Plains fed cattle prices. One has to suspect that worries about the economic outlook persuaded producers to take the weaker bids. Indeed, concurrent equity index losses and another advance to fresh 20-year highs by the U.S. dollar index likely played significant roles in undercutting the livestock markets Thursday. The cash slippage was rather surprising, but one can’t argue a great deal with the decision to keep cattle moving out of feedlots, since that will continue limiting market-ready supplies in the days and weeks ahead.

Early grain futures strength seemed to weigh on the feeder market today, but later setbacks in the anticipated cost of feed apparently did little to alleviate the downward pressure on yearling values. Wednesday’s weakness in the cash market for fed cattle, as well as those in live cattle futures today, likely account for the feeder losses. The fact that nearby futures are still priced far above the feeder index makes them vulnerable to setbacks.

Technical analysis: Bulls still own the short-term technical advantage in August cattle futures. Today’s low at $135.20 represents initial support, with backing from the confluence of the contract’s 10- and 20-day moving averages near $134.75. A drop below stronger support at the 40-day moving average, near $134.10, would have bears again targeting the June 30 low at $131.70. Initial resistance is marked by today’s high at $136.525, with strong backing from Wednesday’s top at $137.40. A breakout above that point would open the door to a test of the April 22 low at $141.75.

Bulls still hold the short-term technical advantage in August feeders despite today’s decline. Indeed, the price action posted the past three days might easily be construed a “bull flag” on the chart, thereby indicating the potential for a follow-through surge to the upside. Initial resistance likely stands at the psychological $180.00 level, with strong backing from today’s high at $180.35. A surge above those points, as well as yesterday’s high at $181.00, would have bulls targeting the February contract high at $187.10. Support at today’s low of $178.45 is closely backed by Wednesday’s low of $178.175. A drop below that point would open the door to a retest of the contract’s 10-, 20- and 40-day moving averages near $175.27, $174.13 and $171.85, respectively.

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.

 

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