Livestock Analysis | July 20, 2022
Price action: Hog futures continued the recent surge, with the nearby August contract jumping $2.05 to $114.875, the highest closing price since April 22.
Fundamental analysis: Hog market fundamentals, particularly for the short-term, remain supportive. The latest CME Lean Hog Index climbed $1.02 to $115.91. The recent pattern has been for mid-week index quotes to exhibit much less strength than those posted just before and after weekends. That looks like it will be repeated again this week, as indicated by Wednesday’s preliminary reading for the index rising just 46 cents to $116.37, which leaves today’s August close about $1.50 under the index. The futures discount doesn’t seem all that large when viewed in light of the historical pattern for hog supplies to surge in early-to-mid-August, which in turn tends to start the usual late summer-autumn breakdown in cash prices. Thus, today’s August futures strength suggests traders are looking for sustained cash gains through the last 10 days of July.
Sustained wholesale strength has also played a sizeable role in the rally in cash and hog futures. Pork cutout values fell $3.34 early today to $121.78, which could be interpreted as signaling an end to the general hog/pork advance. But futures closed strong, suggesting traders are expecting continued wholesale strength. We harbor some concerns about second-half demand prospects, due largely to the sustained nature of the elevated cost of pork at the retail level. The latest report from the Bureau of Labor Statistics indicated that June “all other pork” prices in grocery stores increased 8.9% annually, with bacon and ham prices respectively rising 11% and 9.1% above year-ago levels.
Technical analysis: Bulls still hold the short-term technical advantage, especially after the August future gapped higher and crushed what looked like stiff chart resistance around $114.00. That level and the chart gap between $113.60 and $113.225 now represent initial support, with backing extending from the April 5 low of $111.10. A drop below that level and the 10-day moving average near $110.57, would have bears targeting the 40-day moving average near $107.50. Initial resistance is marked by today’s high at $115.175. Some resistance may also exist around $116.00, but stiff resistance doesn’t seem likely to emerge until the market tests the April 1 low at $118.325.
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.
Price action: August live cattle rose 2.5 cents to $135.75, while August feeder cattle fell 92.5 cents to $177.825.
Fundamental analysis: Live cattle futures ended mixed in narrow-range price action as traders wait for USDA’s Cattle on Feed update on Friday. Analysts on average estimate July 1 inventory at 11.301 million head, which, if realized, would be 0.1% above July 2021. Placements are estimated to be 5% lower than in June 2021, with an additional 1.9% marketed during June. The Cold Storage report detailing frozen U.S. stockpiles at the end of June is also out Friday, as will the biannual USDA Cattle inventory report. Early indications indicate the industry is anticipating a 2% annual decline in the July 1 U.S. cattle population.
After surging to $272.57 Tuesday, USDA’s wholesale boxed beef prices dipped $1.34 at midsession today. Select cutout slipped 43 cents to $243.30, but the choice-select spread remained extremely wide at $27.93, implying very tight supplies of well-fed market-ready cattle in feedlots. Federally inspected cattle slaughter for Tuesday was figured at 125,000 head, setting the pace at 250,000 for the week, up 17,000 compared to last year at 233,000. Monday was estimated at 125,000 head, which is on par for last week and up 9,000 head year-over-year.
Technical analysis: Live cattle futures continue to hold the neutral-to-bullish position, testing resistance at $136.275 mid-morning. August live cattle futures traded an 80-cent range, settling nearly unchanged. The gap generated at yesterday’s open remains unfilled. A further test and close above the $136.275 resistance level would confirm a bullish stance, technically. In that scenario, the next level of resistance will be seen at $136.84. The bull camp is likely keeping a close eye on the gap between $138.75 and $140.375, which was formed on April 25, and making it a target as the market strengthens.
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.
