Livestock Analysis | June 29, 2021
Price action: July lean hog futures closed up $2.025 at $106.975 per hundredweight, while the August contract finished up 85 cents at $103.625. Prices closed nearer the session highs today on more short covering and perceived bargain hunting.
Fundamental analysis: The past three sessions have seen a good corrective bounce in lean hog futures, after the big downdraft in prices the third week in June that knocked $20 off August lean hog futures prices. The going is likely to get tougher for the bulls in the near term, however. Notions of larger U.S. pork supplies beginning later this summer may keep pressure on futures. USDA’s Hogs and Pigs report last week suggested market-ready supplies will be larger than expected through summer, though still down around 1.5%. On the positive side, U.S. pork exports remain solid and that should limit the downside in cash and futures. Also, the discount that the nearby futures are trading to cash hog prices should work to support futures.
The noon pork report showed carcass cutout value up $3.84, led by gains in hams and bellies. Movement was decent at 181.58 loads. Cash prices on a national direct basis were down 11 cents Tuesday, at a five-day rolling average price of $115.46. Today’s hog slaughter is estimated at 461,000 head compared to 475,000 last Tuesday and 472,000 head one year ago at this time.
Technical analysis: Recent downside price action in lean hog futures did produce severe near-term chart damage to still strongly suggest a major market top is in place. The hog bears still have the overall near-term technical advantage as prices are in a near-term downtrend on the daily bar chart. The next upside price objective for the hog bulls is to close August prices above solid chart resistance at $107.50.
The next downside price objective for the bears is closing prices below solid technical support at the June low of $96.50. First resistance is seen at $104.00 and then at $105.00. First support is seen at today’s low of $102.55 and then at $101.00.
What to do: Get current with feed advice. Be prepared to add to third quarter hog hedges and establish fourth-quarter coverage on a corrective price rebound.
Hedgers: You should have 25% of third-quarter production hedged in July hog futures at $95.375.
Feed needs: Cash coverage for meal stands at 100% for July, 75% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 50% for August and 50% for September.
Cattle
Price action: August live cattle rose 32.5 cents to $121.925 per hundredweight, while October rose 22.5 cents to $127.75. August feeder cattle rose $1.05 to $157.40.
Fundamental analysis: It was a relatively quiet, two-sided day of trade in the live cattle market as traders await active cash cattle trade. So far, just light trade has occurred at steady to firmer prices in the northern market and steady to slightly weaker trade in the Southern Plains. The initial trade would suggest prices will be about steady, though movement was light. June live cattle that expire on Wednesday finished today around $3 below last week’s average cash price of $125.47, while the August contract ended $3.545 below that level.
Wholesale beef prices continued to fall this morning, with Choice boxes down another $4.62 and Select $2.50 lower, though movement picked up with 95 loads changing hands. That could be an early sign the drop below $300 in Choice beef and $275 in Select is attracting increased retailer demand. But it will take signs beyond one morning of trade for confirmation.
Feeder cattle firmed as corn came off its highs, though the corn market finished firmer. Cash feeder cattle prices were $2 to $8 higher at the weekly Oklahoma City auction this week, despite high corn prices. But the big premiums feeder futures hold to the cash index is likely to limit buyer interest.
Technical analysis: August live cattle bounced after spiking the 20-day moving average around $120.855 when bears couldn’t trigger a challenge of the June 21 reaction low at $120.50. Those two levels will remain initial support, followed by the $120.125 to $119.575 range, where the 40-, 50- and 100-day averages reside. The five- and 10-day averages at $136.365 and $136.36, respectively, are initial resistance. Stronger resistance is in a band from $123.20 to the contract high at $125.775.
