Livestock Analysis | June 7, 2021
Price action: July lean hogs rose $1.50 to $122.10 per hundredweight today and August rose $1.325 to $118.90. June futures reached $123.60, a seven-year high for a nearby contract.
Fundamental analysis: Strong cash market fundamentals continue to support hog futures, with national barrows and gilt carcasses averaging $109.40 per hundredweight at the end of last week, up from $105.32 the previous week. On national direct markets, carcass values ranged from $99.74 to $125 this morning, according to a USDA report. The average national direct cash price was 85 cents higher this morning.
Wholesale pork markets also remain firm. The pork cutout value firmed $3.23 this morning as all but ribs and picnics posted strong gains. The cutout value is nearing the all-time high of $137.56, which was posted in July 2014. Hog futures’ downside likely will be limited until cash fundamentals signal the rally may be exhausted.
Technical analysis: July lean hogs notched a contract high at $123.60 early in the day but ended near midrange. Still, the steep uptrend from recent weeks remains in intact. Near-term downside levels to watch in the July contract include last week’s low of $117.20 and the late-May lows around $115.775. On a push above today’s contract high, resistance would come from the continuation chart, starting at $127.30.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.30 area in July futures and $5.30 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.
Cattle
Price action: August live cattle closed down $0.30 at $117.775 today and near mid-range. August feeder cattle closed up $0.275 at $150.20 today and nearer the session high.
Fundamental analysis: The cattle futures markets rebounded from session lows as the corn futures market backed way off its daily highs. Feeder cattle will remain very sensitive to day-to-day price movement in corn given elevated feed prices. Cattle traders are keeping an eye on very hot weather in the U.S. Plains that could start to stress cattle if the heat persists.
Seller interest in live cattle futures was again limited by the discount futures hold to the cash cattle market. Last week’s average cash cattle price was $119.92—up 28 cents. Traders will wait to form cash opinions for this week as active trade isn’t likely before the middle to later portion of the week. The noon beef report today showed Choice grade gaining $0.76 and Select down $1.23 on modest movement of 55 loads. The wholesale beef market has been trading independent of futures and cash cattle on the extended rally, but there is risk those markets could weaken if boxed beef prices roll over.
Market-ready cattle supplies will remain heavy and may slow recoveries in futures and cash cattle prices, though the strong wholesale beef markets and robust exports may continue to limit the downside. The strong beef demand from retailers, restaurants and the overseas markets argue there may be more upside for the beef market and cattle futures.
Technical analysis: While last week’s price action quickly exhausted the bears as the markets got past the JBS hacking fiasco, the bulls need to step up and show some power this week. Live cattle bulls' next upside price objective is to close August prices above solid resistance at $121.22. The next downside technical objective for the bears is closing prices below solid technical support at the June spike low of $114.62. First resistance is seen at last week’s high of $119.55 and then at $121.22. First support is seen at today’s low of $117.40 and then at $116.00. 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 in August prices above technical resistance at the May high of $158.72. The next downside price objective for the bears is to close prices below solid technical support at last week’s spike low of $145.10. First resistance is seen at $152.50 and then at $154.00. First support is seen at today’s low of $147.425 and then at $146.00.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.30 area in July futures and $5.30 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.
