Livestock Analysis | May 18, 2022
Price action: June lean hogs rose 95 cents to $106.10, the contract’s highest closing price since May 5. Deferred contracts ended mixed.
Fundamental analysis: June lean hogs rose for the fourth consecutive day as the market extended a corrective recovery from last week’s tumble to four-month lows. The sharp futures bounce, combined with strength in wholesale pork, suggests the market may have begun a delayed seasonal rally. Pork cutout values rose $3.07 early today to $105.18, near a two-week high, and movement by midday totaled 139.51 loads. Tuesday’s overall movement hit a two-month high, suggesting retailers are stepping up purchases ahead of the summer grilling season. Futures’ gains this week have returned the summer-month contracts to a premium to the CME lean hog index, which fell 17 cents today to $99.90 (as of May 16) but the benchmark is expected to rise 18 cents Thursday.
Technical analysis: Hog futures technicals have strengthened considerably this week, with the June contract closing above the 10-day moving average for the third day in a row and have surged $8.625, or 8.8%, from a four-month closing low of $97.475 on May 12. Recent gains strongly suggest the market has established a near-term low. A close above the 20-day moving average around $106.45 and this month’s intraday high at $107.525 (from May 5) may have bulls targeting the $110.00 and $113.00 areas. Downside chart levels to watch include the gap on the daily bar chart between the May 13 high of $100.825 and Monday’s low at $101.40.
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 $1.50 to $131.50, the contract’s lowest closing price since Oct. 6, while August feeder futures dropped 97.5 cents to $165.80.
Fundamental analysis: Nearby live cattle futures sank to a seven-month closing low on pressure from broad commodity and equity selloffs fueled by escalating recession concerns. Disappointing earnings reported this week by Wal-Mart and Target suggested that record gasoline prices are prompting consumers cut back, which may bode poorly for beef demand. Cattle futures were also pressured by cash market weakness. Southern Plains prices fell another $1.00 early today. Weakness in grain markets took some pressure off feeders, but live cattle losses ultimately dragged yearling values lower.
Friday’s USDA Cattle on Feed report is expected to show the May 1 U.S. feedlot inventory at 11.877 million head, up 1.3% from year-ago. April placements are seen falling 4.6% below the comparable year-ago figure, with last month’s marketings total expected to dip 2% from last year. Weak fed cattle and beef prices, along with rising feed costs, probably discouraged feedyard managers from aggressively placing yearlings in their lots last month. Still, deferred live cattle futures are priced at substantial premiums to current cash quotes and nearby contracts, offering a strong incentive for feedlots to boost holdings. We believe that was the reason March placements exceeded expectations for a substantial year-to-year drop and doubt April placements fell all that substantially.
Technical analysis: Today’s decline kept the short-term technical advantage with bears. The daily high virtually matched the June contract’s 10-day moving average near $132.76 and marks initial resistance, with backing from its 20- and 40-day moving averages near $134.22 and $135.17. The April 25 chart gap between $136.85 and $138.35 represents major resistance to further bullish efforts. Today’s low at $131.30 represents initial support, with considerable backing from the March 4 low of $130.975. A drop below that level would have bears targeting the important $130.00 level, then $125.00.
Bears clearly hold the technical advantage in August feeders as well, especially with the contract posting a fresh intra-day low and contract-low close today. The former at $164.60 marks likely initial support. At this point, additional support may not emerge above $160.00. Initial resistance looks likely around $166.15, then at that same day’s high of $170.025. Bulls would likely be targeting $175.00 if they see prices top the prior resistance levels.
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.
