Livestock Analysis | July 5, 2022
Price action: July lean hog futures rose $2.55 to $112.15. August hogs rose $2.975 to $105.95, the contract’s highest closing price since June 24.
Fundamental analysis: Hog futures ended mixed, holding up relatively well amid a broad commodity sell-off that sent grain prices nosediving and crude oil down nearly $9.00. While July hog futures moved to a premium to the CME lean hog index, the August contract continued to hold a discount, which suggests it has more upside potential in the near term, especially amid recession worries, which could be price-supportive for the hog market if consumers substitute cheaper pork cuts over higher-priced beef.
The preliminary reading for the next lean hog index is $110.58, down 12 cents from today’s figure at $110.70 and the fourth straight daily decline. The national direct five-day rolling average cash hog price today was quoted at $116.53. Pork cutout values early today rose $8.28 to $117.03, led by gains of $37 in bellies. Movement at midday was decent at 164 loads.
Technical analysis: August lean hogs scored a bullish “outside day” higher on the daily bar chart, though bears still hold a near-term technical advantage. Key for bulls is to show followthrough buying Tuesday, which would suggest a near-term market bottom is in place and that prices can work sideways to higher in the near term, at least back to the top of the recent trading range just above $110.00 in August futures. The next upside objective for bulls is closing August futures above solid resistance at the June high of $111.05. The next downside objective for bears is closing prices below solid support at the May low of $98.65. First resistance is seen at $107.00, then $108.00. First support is seen at $104.00, then today’s low of $102.15.
What to do: Be prepared to extend feed coverage on a pullback to the recent lows.
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 $1.675 to $132.925, while August feeder futures tumbled $1.80 to $172.70.
Fundamental analysis: Cattle futures joined a general commodity downturn as the dollar’s surge to 20-year highs and growing recession fears sent grain prices tumbling and crude oil down nearly $9.00. U.S. stocks slumped earlier but had climbed to gains late today, though investors have become increasingly concern over the economic outlook for the second half of 2022. Despite red meat markets’ historical tendency for sustained strength during recessions, cattle futures declined in concert with the energy, grain, soft and metal complexes.
Current cattle fundamentals still look supportive, with the usual post-Independence Day sag in consumer demand looking mitigated by tight supplies of market-ready animals. August futures are priced between $4.50 and $6.50 below last week’s quotes for the southern Plains, whereas the northern markets apparently traded in the $148.00 area. Surprising short-term cash weakness could justify the nearby discount, but we’re inclined to think August futures are underpriced. A midday wholesale beef gain of 35 cents to $264.17 looked supportive as well.
August feeder futures rallied in early trading in response to big grain and soy losses, but sagging fed cattle futures tipped them into negative territory as well.
Technical analysis: Bears hold a short-term technical advantage after today’s drop gave back some of last Friday’s big surge and left the August live cattle future again trading below its 40-day moving average. That places initial resistance at $133.86, with backing from Friday’s close, today’s open and the 20-day moving average around $134.62. A breakout above that level would have bulls targeting Friday’s high at $135.65, then the June 9 high at $137.95. Today’s low places initial support near $132.675, with additional support likely at last Thursday’s low of $131.70. Bears are likely targeting the $130.00 level.
In feeders, bears are in a stronger technical position, but bulls still seem to hold the short-term technical advantage in August futures. Look for initial support at today’s low of $172.45, with strong backing from the 40-day moving average near $170.87. A close below that level would seemingly open the door to a test of early-June lows around $165.00. The intersection of the contact’s 10- and 20-day moving averages near $173.25 marks initial resistance, with added resistance likely at today’s high of $176.325. A breakout above that level would have bulls targeting $180.00.
What to do: Be prepared to extend feed coverage on a pullback to the recent lows.
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.
