Livestock Analysis | July 21, 2022
Price action: August lean hogs rose $1.425 at $116.30, the contract’s highest closing price since April 22. October hogs fell 25 cents to $95.775.
Fundamental analysis: Lean hog futures gapped higher for the second straight day behind technical strength and bullish cash fundamentals. The CME lean hog index rose 46 cents to $116.37 (as of July 19), the highest level since June 2021, and is expected to rise another 58 cents tomorrow. August futures’ discount to the index has narrowed to 7 cents, and futures will retain support until the cash benchmark shows signs of topping. However, history suggests seasonally increasing hog slaughter in the coming weeks, with a resulting cash price drop from mid-July into the second week of August.
Continued wholesale market strength signaled retail demand remains solid despite recession concerns. Pork cutout values early today rose $2.20 to $126.57, led by gains in bellies. Movement at midday was 148.6 loads. The national direct five-day rolling average cash hog prices today was quoted at $119.59. U.S. pork export sales improved just a bit in this week’s report, at 20,600 MT, up 13% from the previous week but still down 23% from the four-week average.
Technical analysis: Hog futures bulls have a solid near-term technical advantage and gained more power today. The next upside objective for bulls is to close August prices above solid resistance at $120.00. The next downside price objective for bears is closing prices below solid support at this week’s low of $110.70. First resistance is seen at $117.50, then $119.00. First support is seen at today’s low of $115.275, then $113.60.
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 fell 2.5 cents to $135.725. August feeder futures rose 45 cents to $178.275.
Fundamental analysis: Wholesale beef prices extended Wednesday’s decline, dropping $2.02 early today to $268.51. That seemed to parallel weakness in the cash markets, which averaged $140.40 over the Monday-Wednesday period. That price marked a weekly decline of $1.54. As was the case last week, the cash weakness seemed to represent declines in the northern markets rather than slippage in the south, where prices remain somewhat lower. Feeder futures were supported by weaker corn.
Downside price risk in live cattle over the short-term is limited. This is particularly true given the increasing tightness of market-ready cattle in feedlots. This is best illustrated by the spread between choice and select grade beef prices, which widened to 28.04 cents per pound at midsession today. Steer dressed weights are rising seasonally, having risen to 890 pounds per head during the week ended July 9. But having the choice-select spread rising at this point, when the supply of calf-fed animals exiting feedlots is declining seasonally (thereby tending to skew select-grade beef prices upward) emphasizes the relative shortage of well-finished animals entering the marketing chain.
Technical analysis: Bulls still seem to own the short-term technical advantage in August cattle. The bears’ inability to force a close below initial support at the contract’s 10-day moving average near $135.68 highlights that point. Today’s low places secondary support at $135.325, with a drop below that level opening the door to a test of the conjunction of its 20- and 40-day moving averages near $134.50. A drop below that point would have bears targeting the July 11 low at $132.875. Resistance is stacked from today’s high at $136.125 to last week’s high at $137.40. A breakout above that range would have bulls targeting the June 9 high at $137.95, then the $140.00 level.
Bulls still hold the short-term technical advantage in August feeder futures as well. Today’s high puts initial resistance at $178.675, which is closely backed by yesterday’s high at $179.65, as well as the psychologically important $180.00 level. Additional resistance persists at the July 13 high at $181.00, but a breakout above that point would have bulls targeting the February high of $186.475. Initial support at the 10-day moving average near $177.38 is backed by today’s low of $176.375. Those are backed by the contract’s 20- and 40-day moving averages near $175.22 and $173.36, respectively. A drop below the latter point would have bears targeting $170.00.
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.
