Livestock Analysis | July 19, 2021
Fundamental analysis: Hogs are under some profit-taking pressure after last week’s gains and from general commodity market weakness led by sharp declines in crude oil futures. But strong wholesale pork prices and nearby futures’ large discounts to the CME cash index kept a floor under futures.
Wholesale pork price extended a recent climb amid stepped-up retail demand and tight supplies. Primal carcass cutout values at midday averaged $128.98, up $4.04 from the end of last week and the highest in a month. Carcasses on national direct markets ranged from $105 to $114 at midday, USDA reported, compared to $107.32 at the end of last week.
Chinese live hog prices may continue to rebound, a government official said. Fewer pigs were born in January and February, which should lead to a drop in the number of hogs slaughtered in July and August. Outbreaks of African swine fever over the winter accelerated slaughter, weighing on prices during the second quarter and in turn triggering panic selling by producers. But prices have risen 15% since the start of June, with China making domestic pork prices for the first time since 2019.
Technical analysis: August lean hogs held within a tight recent range but still appear to be in a minor short-term uptrend. Chart levels to watch include $106.80, last week’s high in August hogs, $120.10, last week’s low, and the 100-day moving average around $104.27.
What to do: Exit the third-quarter hedges in July futures. Be prepared to add fourth-quarter hedges when the rebound in October futures stalls. Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
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 futures rose 7.5 cents to $120.25 per hundredweight and October live cattle fell 50 cents to $125.10, a five-week closing low. August feeder cattle rose $1.75 to $157.375.
Fundamental analysis: Cattle futures remained under pressure from softer cash markets and poor technical performance last week, while feeder futures gained support from declines in the corn market. Traders await USDA reports this week that will help set longer-term direction. Upcoming reports include monthly Cold Storage on Thursday and Cattle on Feed and Cattle Inventory Reports Friday.
Wholesale beef extended a six-week decline amid lackluster retail demand. Choice boxed beef cutout values averaged $266.18 per cwt. this morning, down $1.76 from Friday and the lowest price since April 7. Select dropped $1.63 to $250.16 per hundredweight. Last week, live steers averaged $122.82, according to USDA reports, up 66 cents from the week prior.
Technical analysis: Futures’ technical foundation continued to erode, as October live cattle broke below a recent consolidation pattern on the daily chart and dropped as low as $124.05, the contract’s lowest intraday price since June 10. August live cattle pushed below the 100-day moving average around $119.90 earlier in the session before bouncing back to above that level. Other chart levels to watch include August’ intraday low so far this month at $118.85.
What to do: Be prepared to add hedges on signs of a top.
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.
