Livestock Analysis | June 3, 2021
Price action: July lean hogs rose $0.525 to $119.00 per hundredweight today, while October futures rose $1.05 to $95.625.
Fundamental analysis: Nearby hog futures remained near seven-year highs amid continued strength in wholesale pork markets. Pork cutout values today rose another $2.24 to an average of $131.83 per hundredweight, up 68% from the end of 2020 and the highest in nearly seven years, according to USDA data. Primal ribs dropped nearly $22, to about $275, but are still up over 90% this year. On cash hog markets, carcass values this morning ranged from $92.85 to $111.75 per hundredweight, compared with an average of $108.65 Wednesday.
Lean hog futures prices are approaching lofty levels last seen in mid-2014. Key to further strength will be export demand for U.S. pork, with traders scrutinizing Friday’s USDA weekly export sales (delayed a day due to the Memorial Day holiday). Traders are also watching livestock developments around the world. Hog prices in China continue to fall, with the country’s national cash price sinking to two-year lows. Continued weakness may eventually crimp new Chinese purchases of U.S. pork.
Rallies in grain and livestock markets are fueling food inflation. Global food prices climbed 4.8% from April to May, with prices now up nearly 40% from year-ago, according to an index released by the Food and Agriculture Organization of the United Nations (FAO). The monthly gain was the largest since October 2010 and may lend ongoing support to the ag markets.
Technical analysis: July lean hog futures on Wednesday matched a contract high at $120.40 before closing lower, a potentially bearish signal. July settled today slightly below last week’s close at $119.35. A close below $116.85 would be a new sell signal. Still, a six-month-old uptrend remains intact, with the next upside price objective for the hog bulls is to close August prices above solid chart $120.00.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures. Be prepared to add to third quarter hog hedges and establish fourth-quarter coverage.
Hedgers: You should have 25% of third-quarter production hedged in July hog futures at $95.375.
Feed needs: You should have all soybean meal needs covered in the cash market through July, along with 50% for August and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
Price action: August live cattle closed down $0.725 at $118.525 and near the session low today. August feeder cattle closed up $0.625 at $152.95 today and nearer the session high today.
Fundamental analysis: The cattle futures markets late this week have become more orderly after the early-week fiasco related to the computer hack of JBS. Feeder cattle futures were supported today by lower corn futures prices.
Today’s cattle slaughter is estimated at 120,000 head compared to 121,000 head last week. Traders wanted to see daily slaughter rates rise above 120,000 head to ease concerns about backlogged market-ready animals The next three weeks are usually some of the biggest slaughter of the year. Cash cattle trade picked up Wednesday in Iowa at $119 to $121, in Kansas and Texas mostly around $120 and in Nebraska from $120 to $122. Steady to firmer cash prices are a positive signal that cattle are making cycle lows. Early this week, some feared the drop in processing would lower cash cattle prices. Firmer cash bids come in the face of record packer margins. The noon beef report Thursday showed Choice grade up another $1.36 and Select up $1.63. Movement was a strong 66 loads.
Futures remain generally supported by ongoing strength in beef prices, which this week are the highest since a pandemic-driven spike about a year ago. Market-ready cattle supplies will remain heavy and may slow recoveries in futures and cash prices. However, the price spike lower this week probably was a 43-week cycle low and may help ease supply concerns amid strong domestic and export demand.
Technical analysis: This week’s price action quickly exhausted the bears as the markets get past the JBS hacking incident. The live cattle futures bulls have regained the overall near-term technical advantage. Their next upside price objective is to close August prices above solid resistance at last week’s high of $121.22. The next downside technical objective for the bears is closing prices below solid technical support at this week’s low of $114.62. First resistance is seen at this week’s high of $119.55 and then at $121.22. First support is seen at $118.00 and then at Wednesday’s low of $117.05. Feeder cattle bulls’ next upside price objective is to close in August prices above technical resistance at last week’s high of $158.72. The next downside price objective for the bears is to close prices below solid technical support at this week’s low of $145.10. First resistance is seen at $154.00 and then at $155.00. First support is seen at today’s low of $151.025 and then at $150.00.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through July, along with 50% for August and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
