Livestock Analysis | July 6, 2022
Price action: July lean hogs rose $1.00 to $113.15, while August futures surged $3.25 to $109.20, a two-week closing high.
Fundamental analysis: Hog futures extended Tuesday’s rally as traders shrugged off continued erosion in cash benchmarks. The CME lean hog index fell 12 cents to $110.58, the fourth straight daily decline, and is expected to drop another 65 cents tomorrow. But futures’ gains this week suggest traders anticipate the cash market will strengthen over the short-term. August futures’ discount has narrowed to $1.38 at today’s close from nearly $8 at the end of last week.
Futures’ strength may in part reflect renewed strength in wholesale pork prices. Pork cutout values jumped $5.77 Tuesday to a three-week high at $114.48, which suggests consumer red meat demand is proving stronger than expected even amid recession concerns. The sustained futures gains certainly imply that wholesale strength will translate into cash prices in short order. This seems especially likely given that current hog supplies are at their lowest levels of the year and probably won’t increase substantially until the second half of July.
Technical analysis: This week’s early strength has flipped the short-term technical advantage to bulls in August hog futures. The contract settled near its 40-day moving average at $105.98 yesterday, then gapped higher today, making the moving average strong support, with initial support marked by today’s low at $107.025. The 40-day moving average is backed by the confluence of the contract’s 10- and 20-day moving averages near $105.25. A drop below that level would have bears targeting last Thursday’s low at $100.25. Today’s high places initial resistance at $109.95. A push above that level would likely face secondary resistance at the June 21 high of $110.225, with a bullish follow-through then having bulls targeting the psychological $115.00 level.
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 closed up $1.575 at $134.50 and nearer the session high. August feeder cattle closed up 60 cents at $173.30 and nearer the session high.
Fundamental analysis: August live cattle futures gained back most of what the market lost Tuesday amid continued choppy trading. Improving cash market fundamentals are giving the bulls some confidence. Choice boxed beef prices rose another $3.58 at midday today to $268.24, with Select grade gaining $2.05. The seasonally wide Choice-Select spread, presently at $26.32, suggests market-ready cattle supplies will remain current or even tighten in the near term. Boxed beef movement at noon was 67 loads. With retailers expected to do lighter buying following the Fourth-of-July holiday, beef movement isn’t expected to be strong this week. Cash cattle trade at mid-week is at a standstill, with no bids and limited asking prices. Live steers last week averaged $146.16, up $1.61 from the previous week’s average.
Still, cattle market bulls are tentative after Tuesday’s market meltdowns in much of the commodity sector amid worries a U.S. economic recession is on the horizon or already here. The U.S. dollar index’s surge to fresh 20-year highs this week raises additional concern over demand.
Technical analysis: Live cattle futures bears have the slight overall near-term technical advantage amid recent choppy trading. Live cattle bulls' next upside price objective is to close August futures prices above solid resistance at the June high of $137.95. The next downside technical objective for the bears is closing prices below solid technical support at the May low of $129.975. First resistance is seen at this week’s high of $135.075 and then at last week’s high of $135.65. First support is seen at this week’s low of $132.675 and then at last week’s low of $131.70.
Feeder cattle futures bulls and bears are on a level overall near-term technical playing field. The next upside price objective for the feeder bulls is to close August futures prices above technical resistance at the April high of $178.225. The next downside price objective for the bears is to close prices below solid technical support at the May contract low of $162.80. First resistance is seen at $175.00 and then at this week’s high of $176.325. First support is seen at today’s low of $172.075 and then at last week’s low of $170.325.
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.
