Livestock Analysis | May 19, 2022

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Hogs

Price action: June lean hog futures fell 80 cents to $105.30 and July hogs fell $1.55 to $106.975, both near session lows.

Fundamental analysis: Hog futures fell for the first session in five in a corrective pullback from a recent rally, which has fostered ideas the market has established a near-term bottom and begun a delayed seasonal rally. July hogs are almost $10 above a four-month intra-day low of $97.375, but followthrough selling Friday would cast doubt on beliefs that a market bottom is in place. Seasonals suggest a rally in the cash and futures amid expected lower slaughter numbers and a pick-up in demand from summer grilling.

Hog futures bulls still need to see the cash market show better strength. The CME lean hog index rose 18 cents to $100.08, as of May 17. The May 18 preliminary cash index quote is $100.37, up 29 cents from Tuesday. The national direct five-day rolling average cash hog price today was quoted at $106.52. The noon pork report was delayed today due to packer submission issues, USDA said. Fresh pork prices have made solid gains so far this week. USDA this morning reported net weekly U.S. pork sales of 24,100 MT for 2022, down 8% from the previous week but up 2% from the four-week average.

Technical analysis: Bears have a near-term technical advantage. However, this week’s price action still suggests 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 resistance at $115.00. The next downside objective for bears is closing prices below solid support at the May low of $97.375. First resistance is seen at this week’s high of $108.825 and then at $110.00. 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.

 

Cattle

Price action: Cattle futures were mixed Thursday, with June live cattle closing unchanged at $131.50, while August feeder futures slid 60 cents to $165.20.

Fundamental analysis: Wholesale beef firmness helped boost live cattle futures, with bulls likely hoping recent strength will persist through the end of the month. Grocers' historical buying patterns at this time of year make the chance of sustained strength seem low, since they usually finish their buying for Memorial Day weekend features by this point and won’t aggressively pursue product for Father's Day and Independence Day until early June.

Bulls may also have been encouraged by renewed firmness in cash prices. The Monday-Wednesday cash average for the five-market area rose 83 cents from Monday-Tuesday to $140.21. But that’s still down $1.96 from the comparable week-ago figure. We tend to agree with the sizeable discounts already built into the summer live cattle contracts, expecting substantial cash market losses as spring-summer cattle supplies increase and recessionary/inflationary pressures continue squeezing consumer beef demand. Sustained downward pressure upon the equity markets could also undercut the commodity markets.

Feeder futures came under fresh pressure Thursday despite grain market weakness. However, the approximate $14.00 jump in nearby soybean meal futures implies a rise in feed costs. The expiring May yearling contract ended the day (at $154.25) at a modest discount to the feeder index at $155.05. But deferred feeder futures are trading at increasing premiums over the August contract at $165.20. We view those as increasingly vulnerable to downward pressure if the grain/soy markets don’t decline substantially during the weeks and months ahead.

Technical analysis: Bears still hold a short-term technical advantage but were unable to push June live cattle lower today. Initial support extends from today’s low at $131.20 to the March 4 low of $130.975. A drop below that level would have bears again targeting the psychologically important $130.00 level, then $125.00. Initial resistance at today’s high of $132.25 is closely backed by the 10-day moving average at $132.52. A move above that level would have bulls targeting the contract’s 20- and 40-day moving averages, now at $133.80 and $135.06, respectively.

Bears still hold a short-term advantage in August feeder futures, although they proved unable to force the price below yesterday’s contract low at $164.60. A close below that level would likely have bears targeting the psychological $160.00 level, then $155.00. Resistance stairsteps up from today’s high at $166.125 to Tuesday’s high at $168.70. That’s backed by the contract’s 10-, 20- and 40-day moving averages at $169.40, $171.17 and $173.25, respectively.

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.

 

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