Livestock Analysis | June 8, 2021
Price action: August lean hog futures closed the day down $0.225 at $118.675. Most-active July slid $0.30 to $121.80. December futures gained $0.575 at $88.675 and hit a new contract high today.
Fundamental analysis: Ongoing gains in the CME lean hog index (+1.76 to 116.51) and noon pork cutout (+0.63 to 135.36) boosted the expiring June hog contract 0.80 to 120.70, whereas concerns about seasonally increasing supplies and diminishing demand during the summer doldrums seemingly weighed on deferred contracts. The July contract’s sizeable premium to the index likely handicapped bulls as well.
The current cyclical decline in hog supplies is being exaggerated by the industry’s approach to seasonal lows, which is playing a major part in boosting hog and pork prices to highs only exceeded during the 2014 PEDv crisis. However, the prospect of seasonally increasing supplies, especially after early August, may limit short-term price strength. Still, extremely tight pork belly stockpiles could send that market soaring, and boost hog prices accordingly as BLT season gets underway.
Technical analysis: July lean hog futures couldn’t sustain their early test of Monday’s high Tuesday morning, then fell sharply soon thereafter. But bears couldn’t maintain downward momentum and watched the market post a mid-range close. The daily chart shows the market remaining well supported above 10-day moving average support, although its 14-day Relative Strength Index has edged into technically overbought territory.
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.
Price action: August live cattle settled 5 cents higher at $117.825, the contract’s first gain in four sessions. August feeder cattle ended 95 cents lower at $149.25, the contract’s lowest close in a week.
Fundamental analysis: Nearby live cattle futures paused as Choice beef cutout values this morning averaged $338.88 per hundredweight, up 28 cents from yesterday. Cutout values are down from a recent peak at $340.55 on June 3, but still up 62% from about $210 at the end of 2020. This week’s cash cattle activity started around $120 in the live market, about steady with week-ago.
Futures downside may be limited by the discount they hold to the cash cattle market. June live cattle finished today at a $3.195 discount to last week’s average cash price of $119.92.
Feeder cattle were pressured by firmer corn prices amid growing concern over crop stress from heat and dryness in the western and northern Corn Belt. Corn futures rose 6 to 7 cents today. But as corn backed off its highs, feeder cattle came off their lows. Price action in feeders is tied to day-to-day activity in corn given elevated prices.
Technical analysis: Sagging cattle futures technical patterns put the onus on bulls to hold key chart levels, such as the August contract’s June 1 spike low at $114.625. August futures are trading below most key simple moving averages, with the exception of the 200-day, currently about $114.35. A close above $121.225 in the August contract could restore more of an upward posture.
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.
