Livestock Analysis | July 19, 2022

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Hogs

Price action: August lean hog futures rose 70 cents to $112.825, the contract’s highest closing price since late April. October futures also inched up, while the deferred contracts posted moderate losses.

Fundamental analysis: Red meat demand appears to be robust despite high retail prices. Choice beef values are trading near their spring highs despite cattle slaughter rates likely around their highs for the year. Pork cutout values also surged, reaching $125.72 early today after having topped $120.00 last Friday. Hams, bellies and ribs led today’s gains. Firm early-summer prices aren’t surprising given hog slaughter near annual lows. But we would also point out that slaughter during the weeks ended July 2 and July 9 easily topped year-ago levels, so we’re not experiencing an extraordinary shortage of animals at this point. Last week’s kill did fall about 1.5% under year-ago, which is largely in line with the data on last month’s USDA Hogs & Pigs report.

Recent wholesale market strength is unusual, which we believe partially reflects the historical tendency for meat demand to hold up well during recessionary times. Consumers seem to reward themselves for general frugality, including foregone restaurant business, by buying and eating more meat from the grocery store. We tend to expect sustained short-term strength in the days ahead, although downside risk likely increases significantly after August 1.

Technical analysis: Bulls own a short-term technical advantage in August futures. Today’s price action created a bullish outside day up and posted a close near the daily high. The daily high places initial resistance at $113.325. A breakout above that point seems likely to have bulls facing spring resistance around $114.00, then at the first quarter high of $118.20. A push above that point would have them targeting the April top at $121.25. Look for initial resistance at today’s low of $110.70, with strong backing from the 10-day moving average near $110.00. A drop below that level would have bears targeting the intersection of the contract’s 20- and 40-day moving averages near $107.50.

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: August live cattle rose 10 cents to $135.725, around the middle of today’s range. August feeder cattle rose $2.075 to $178.75.

Fundamental analysis: Live cattle futures rose modestly in two-sided activity as traders waited for the cash market to develop, while feeder futures posted strong gains as corn prices dropped over 15 cents. Cash prices have been trending lower the past few weeks, but extreme heat in the Midwest and Plains is stressing cattle, with temperatures forecast to reach 111 degrees Fahrenheit in parts of the Texas Panhandle, Reuters reported.

Despite recession concerns that have weighed on commodity markets, meat demand still appears to be holding up. Choice beef cutout values rose $2.43 early today to $272.98, a three-month high, but recent movement has been light, indicating retailers have upcoming beef needs mostly covered and are likely to be more selective. Live steers last week averaged $142.12, down $2.23 from the previous week and the second straight weekly decline from seven-year highs hit earlier this month.

Technical analysis: Live cattle futures hold a neutral-to-bullish near-term technical posture as nearby contracts hold within the range of the past two weeks and remain above 10-, 20- and 40-day moving averages. Friday’s low at $134.65 marks initial support and is backed by the 20-day moving average just below $134.60 and the 40-day moving average around $134.30. Initial resistance comes in at Monday’s high of $136.80, followed by last week’s high of $137.40.

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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