Livestock Analysis | July 26, 2022

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Hogs

Price action: August Lean hogs fell 25 cents to $116.975, while October Lean hogs closed 47.5 cents to $93.65.

Fundamental analysis: Lean hog futures fell a second consecutive session amid corrective, profit-taking pressure following last week’s rally to three-month highs. But futures remain supported by firm cash fundamentals continue to support prices. The CME lean hog index rose 91 cents to $119.13 (as of July 22), the highest level since June 2021. August futures currently are trading at a discount of $2.155 to the index. Tomorrow’s index is expected to rise another 35 cents, though futures’ weakness indicates traders are wary the cash benchmark may be nearing a top

The wholesale market eased slightly early today but remains in a sharp, month-long uptrend. Pork cutout values fell 93 cents early today $126.89, led by a $6.76 drop in butts, though ribs gained $5.88. Hog slaughter so far this week, at 917,000 head, is running about 8,000 head above the same period last week but is down 17,000 from the same period last year. Still, kills are likely to rise, with the increases accelerating by mid-August. Anticipation of the production surge, as well as diminished demand for the various grilling cuts and bacon, are reflected in the large discounts in fall and winter futures.

Technical analysis: August Lean hogs traded a $1.525 range and stayed above support levels of $115.70 and $114.175. Resistance at $118.6 and $119.975 remained untested in today’s session as well, suggesting a trend of near-term consolidation. However, it would be easy to interpret recent August futures action as having created a ‘bullish pennant’ formation on the chart, thereby suggesting the potential for a fresh breakout to the upside.

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 fell 87.5 cents to $136.875. August feeder cattle tumbled $1.875 to $177.425.

Fundamental analysis: Live cattle futures fell in a corrective setback from Monday’s rally to three-month highs. An outlook for limited beef demand and further weakness in cash prices also weighed on the market. There is little reason to expect a significant deviation from the historical seasonal pattern of seasonal weakness in the live cattle market, especially with retailers likely having secured their needs for features over the first weekend in August. That may help explain why Choice beef cutouts values surged $1.66 to $269.77 early today, suggesting last-minute retail buying. The market appears to expect cash prices to slip in coming days. A few Iowa cattle apparently changed hands at $141.00 yesterday, unchanged from quotes posted early last week.

Feeder futures fell as corn and soybean futures rallied. Feeder weakness could be cited as a bearish factor for live cattle, but the higher feed costs implied by surging corn and soybean prices could actually further tighten fed cattle supplies over the longer-term.

Technical analysis: Bulls hold the short-term technical advantage in August live cattle, with the inside down-day doing little damage on the chart. Look for initial resistance at today’s high of $137.65 to be closely backed by yesterday’s high of $138.075. That essentially matched the June 9 high at $137.95, so a breakout above that area would open the door to an attempt to fill the huge April 25 chart gap between $138.75 and $140.275. A push above the latter level would have bulls targeting the contract high at $141.825. Today’s low places initial support at $136.725, with backing from the 10-day moving average near $136.20. A close below that level would have bears targeting the contract’s 20- and 40-day moving averages near $135.14 and $134.85, respectively.

Bulls still hold a short-term advantage in August feeder futures but are slipping. Bulls couldn’t sustain an early test of the contract’s 10-day moving average near $178.60, with the failure at that level opening up short-term downside potential. Resistance at the 10-day moving average is backed by that at last Friday’s high of $181.825, with a move above that level likely to open the door to a test of the contact high at $187.10. Conversely, a drop below initial support at today’s low of $177.00 may not emerge above the contract’s 20-day moving average near $176.06, then at the 40-day moving average near $174.25. A drop below that point would have bears targeting the July 11 low of $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.

 

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