Livestock Analysis | May 17, 2022
Price action: June lean hog futures rose $1.325 to $105.15, the contract’s highest close since May 6. July lean hogs rose $2.95 to $107.75.
Fundamental analysis: Continued short covering and corrective buying sent hog futures firmly higher for a third straight session following last week’s plunge to four-month lows. But the cash hog market must show stronger leadership for both cash and futures to trend higher in coming weeks. The summer-month hog futures contracts are now trading at decent premiums to the cash index.
The CME lean hog index fell 42 cents to $100.07 today (as of May 13), the lowest since April 18. The next index is expected to drop 17 cents to $99.90. The national direct five-day rolling average cash hog price today was quoted at $104.59. Pork cutout values rose $2.28 early today to $103.83, led by gains in bellies. Movement at noon was good at 204.94 loads. The traditional start to summer grilling season Memorial Day weekend may boost pork demand in coming weeks. On the export front, today’s drop in the U.S. dollar index from its recent 20-year high may help make U.S. pork exports more competitive.
Technical analysis: Lean hog bears still have an overall near-term technical advantage. However, this week’s price action suggests the bears ran out of gas and that a near-term market low is now in place. The next upside price objective for the hog bulls is to close July prices above solid chart resistance at $113.00. The next downside price objective for the bears is closing prices below solid technical support at the May low of $97.375. First resistance is seen at today’s high of $107.975 and then at $109.00 First support is seen at $106.00 and then at $105.00.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
Price action: June live cattle fell 17.5 cents to $133.00. August feeder futures fell 65 cents to $166.775.
Fundamental analysis: As indicated by last week’s slippage, the five-area cash average ended the week at $142.44, marking a 98-cent weekly decline. Light cash trading yesterday put prices slightly below last week’s average. Today’s Southern Plains trading reportedly turned active at modestly lower levels (around $137.00 to $138.00) than was the case last week. The cash markets apparently remain bifurcated between North and South. History suggests further losses will be forthcoming after most grocers complete their buying for Memorial Day features around noon tomorrow. The weakening demand is often met by seasonally increasing fed cattle supplies. The fact that producer marketings aren’t very current is also reducing their leverage in bargaining with packers.
June futures are still about six weeks from expiration (on Thursday, June 30) and, as indicated by today’s closing price, about $9.50 cents under last week’s cash average. The question for traders is whether the discount has fully anticipated the expected decline or might be too large or too small. This week’s early wholesale strength is somewhat encouraging, but we are inclined to suspect greatly elevated retail prices will continue stifling consumer buying, thereby opening the door to a larger-than-normal mid-year decline. Elevated feed costs continue to weigh on feeder futures, despite weakness today in corn and soybean meal.
Technical analysis: Bears retain the short-term technical advantage, especially after the nearby June contract proved unable to sustain an early push above its 10-day moving average near $133.06. That remains initial resistance, with backing from the 20- and 40-day moving averages near $134.57 and $135.85, respectively. A breakout above those levels would have bulls targeting the April 25 chart gap between $136.85 and$138.35. Today’s low at $132.825 marks initial support, with strong backing from last Friday’s low at $131.275, then the March 4 low at $130.975 and ultimately the pivotal $130.00 level respected on the cattle charts for the past 10 years. A breakdown below that point would have bears targeting $125.00.
August feeders also rallied early, but bears were able to force the weak close. Initial support at today’s low of $166.40 is only slightly above yesterday’s contract low of $166.00. A drop below that level would likely have bears targeting the psychological $165.00 level, then $160.00. Today’s opening quote at $168.10 looks like initial resistance, with backing from today’s high at $168.70. A bullish breakout would have bulls targeting $170.00, then $175.00.
What to do: Cover all soybean meal needs in the cash market through May. Be prepared to extend coverage on further price weakness. You are hand-to-mouth on corn-for-feed needs.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on price weakness. You are hand-to-mouth on corn-for-feed needs.
