Livestock Analysis | June 29, 2022
Price action: July lean hog futures fell 52.5 cents to $109.40. August hogs fell 25 cents to $103.575.
Fundamental analysis: Hog futures continued to slip amid concern over U.S. dollar strength, slumping U.S. stocks and a possible recession. A sell-off in cattle also weighed on hogs. The preliminary lean hog index quote is $111.24, down 40 cents from Tuesday’s official figure at $111.64, which was a 10-month high. However, summer-month lean hog futures trading at large discounts to the cash index (August futures presently around $8.00 under) suggest traders believe the cash hog market will see weakness as supplies coming to market are expected to begin to rise later in July. The national direct five-day rolling average cash hog prices was quoted at $118.13 today. Pork cutout value at noon today rose a solid $4.91 at $110.38, led by a $33 rise in bellies. Movement was decent at 148.30 loads.
USDA’s Hog and Pigs Report released after today’s close showed most major categories down about 1.0% from year earlier levels and near trade expectations. All hogs and pigs as of June 1 totaled 72.524 million head, down 0.9% from the same date in 2021. Analysts on average expected a decline of about 0.7%. Animals kept for breeding totaled 6.168 million head, down 0.8% from a year earlier and smaller than the expected drop of 1.1%. Market hogs totaled 66.356 million head, down 0.9% from year-earlier.
Technical analysis: Hog futures bears have the overall near-term technical advantage. The next upside price objective for the hog bulls is to close August prices above solid chart resistance at the June high of $111.05. The next downside price objective for the bears is closing prices below solid technical support at the June low of $101.30. First resistance is seen at Tuesday’s high of $105.75 and then at $107.00. First support is seen at today’s low of $103.00 and then at $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.
Price action: August live cattle sank 55 cents to $132.175, the lowest close since May 31, while August feeder futures sagged $1.10 to $170.725.
Fundamental analysis: Cash cattle markets firmed, as indicated by the five-area average rising to $140.66, up from $139.11 for last week’s Monday-Tuesday trade. Packers are reportedly bidding $138.00 in the south, which is up from the bulk of last week’s southern activity at $137.00. Bulls aren’t getting much help from the wholesale market, where choice cutout fell $1.59 to $265.55. But such weakness is to be expected at this time. Conversely, the spread between choice and select beef values has climbed to $24.22. Even with the seasonal average around $18.00-$20.00 at this time of year, this widespread implies feedlot marketings are quite current, thereby giving producers increased leverage when bargaining with packer buyers.
Nevertheless, anticipation of sustained seasonal weakness appeared to dominate the deferred contracts once again. Considerable pessimism does seem to be warranted since the usual summer demand slump is likely to be exacerbated by greatly elevated retail beef prices this year. Concerns about a forthcoming recession and sagging consumer demand are also weighing on the deferred contracts.
Feeder futures moved lower, likely in response to higher soybean and meal prices, whereas the grain markets were decidedly mixed. The feeder index is now quoted at $164.20, which is obviously well below nearby feeder futures trading over $170.00 and spring 2023 contracts priced over $180.00. Thus, the onus is on the bulls to see if forthcoming cash market moves justify the implied short-to-intermediate-term optimism. Much of this bullishness is probably predicated upon significantly lower corn and soybean meal prices, as well as higher fed cattle prices, in the months ahead.
Technical analysis: The bears own the short-term technical advantage in August live cattle futures, with the market closing near initial support at today’s low of $132.10. A drop below that level will have bears looking to test the $131.00 low from May 23, then the pivotal $130.00 level. A close below that point would have bears targeting the $125.00 area. Initial resistance at today’s high of $133.375 is backed by the contract’s 40-day moving average at $134.12, then the intersection of its 10- and 20-day moving averages near $134.65. A breakout above those levels would have bulls targeting the $138.00 area.
Bears seem to hold the short-term technical advantage in August feeders since the contract settled just below its 40-day moving average near $171.03 today. Support at today’s low of $170.325 is backed by the June 13 low of $169.40. A breakdown below that point would have bears targeting the $165.00 level, then the contract low at $162.80. Initial resistance at the 40-day moving average is backed by today’s high at $172.675, then by the intersection of the contract’s 10- and 20-day moving averages near $173.00. A close above that point would open the door to a test of the June 9 high at $176.875, then $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.
