Livestock Analysis | June 28 2022

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Hogs

Price action: July lean hog futures fell 25 cents to $109.925. August hogs lost $1.05 at $103.825, closing near the session low.

Fundamental analysis: Hog futures were pressured by a sell-off in U.S. equities as a weak U.S. consumer confidence reading further fueled concerns over a potential recession and weaker demand for meat and other commodities. A bearish USDA Cold Storage report last week continued to weigh on hog futures, overshadowing continued strength in cash fundamentals. The CME lean hog index today reached $111.35, the highest since August, and is expected to gain another 27 cents tomorrow. But August futures’ discount to the index widened to $7.525, suggesting traders believe the cash index is close to peaking. Pork cutout values early today rose $3.30 to $112.33, led by solid gains in bellies. Movement at midday was strong at 173.53 loads.

Traders await USDA’s quarterly Hogs and Pigs report after the close Wednesday. While some traders think the pork industry is close to an expansion phase, we expect the report to reflect smaller than expected herd numbers, a potentially bullish factor for futures.

Technical analysis: Hog futures bears have a near-term technical advantage. The next upside price objective for bulls is to close 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 June low of $101.30. First resistance is seen at $106.00, then at $107.00. First support is seen at today’s low of $103.45, then $102.00.

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.

 

Cattle

Price action: August live cattle fell 75 cents to $132.725. August feeder futures fell $2.30 to $171.825.

Fundamental analysis: Recession fears weighed on cattle futures in the wake of a soft Consumer Confidence report that sent U.S. stocks tumbling. Cattle traders awaited signals from cash after strength in northern Plains markets sent the overall average live steer price to $144.55 last week, up 88 cents from the previous week. Expectations for weakness in southern markets probably weighed on June futures, as a significant futures premium over cash prices in that region would likely provoke a strong delivery response.

Still, the northern Plains strength likely will limit June futures losses before the contract expires Thursday. Monday’s surprisingly strong rise in wholesale beef cutout, to $268.68 (up $3.70), which likely reflected last minute grocer buying for features this weekend, looks supportive as well, although choice cutout had fallen $1.75 at noon today. Tuesday’s combination of falling deferred cattle futures and strength in soybean and corn futures undercut the feeder market once again. Feeders might react sharply if Thursday’s USDA Acreage and Grain Stocks reports spark significant moves in grains.

Technical analysis: Bears hold a short-term technical advantage in August live cattle. Having the contract again fail at 40-day moving average resistance now around $134.23, along with today’s weak close, seemingly points to further downside potential. A drop through tentative support at today’s low of $132.60, then Monday’s low at $132.35, would have bears targeting the pivotal $130.00 level on the long-term charts. Initial resistance is likely at today’s opening near $133.275, then at the 40-day moving average. Additional resistance is marked by the 10-day moving average near $134.83. A breakout above that level would open the door to a test of the $138.00 area.

Bulls still own a slight technical advantage in August feeder futures, since bears proved unable to mount a serious challenge of 40-day moving average support at $171.10. A drop below that level, would face psychological support near $170.00, but a followthrough decline beyond that point would have bears targeting the $165.00 level. Bulls now face significant resistance in the area between the contract’s 20- and 10-day moving averages near $172.70 and $173.04, respectively. A push above that point would open the door to a test of Monday’s high at $175.75, then the $180.00 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.

 

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