Livestock Analysis | May 24, 2022

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Hogs

Advice: We advise livestock producers to use the price weakness to cover three weeks of corn-for-feed needs in the cash market.

Price action: June lean hog futures fell $1.35 to $109.025. July hogs fell $1.80 at $109.05.

Fundamental analysis: Hog futures fell on corrective profit-taking in the wake of sharp recent gains. Improving cash fundamentals should limit downside. The CME lean hog index rose 91 cents to $102.08 (as of May 20), the fourth straight daily gain and a two-week high. Wednesday’s projected cash index (as of May 23) is $103.03, up another 95 cents. Summer-month hog futures hold premiums of nearly $7.00 to the index. The bigger premiums in nearby futures contracts over the cash index may continue to hold back the futures markets, unless the cash index plays catch-up quickly. The latest national direct five-day rolling average cash hog price today was quoted at $110.27.

Pork cutout values early today rose 81 cents to $107.86, led by gains in ribs and bellies. Movement at midday was decent at 164.12 loads. USDA Monday afternoon reported U.S. pork stocks at the end of April totaled 530.2 million lbs., up 44.3 million lbs. (9.1%) from March and higher than the five-year average of a 16.4-milllion-lb. increase during the month. Pork stocks rose 73.3 million lbs. (16.0%) from last year but were still 52.7 million lbs. (9.0%) under the five-year average.

Technical analysis: Hog futures bears have a slight near-term technical advantage. However, recent price action still suggests a near-term market low is in place. The next upside objective for 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 $111.125 and then at $112.00. First support is seen at today’s low of $107.625 and then at $106.00.

What to do: Cover all corn-for feed needs in the cash market through mid-June. You should have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on further price weakness.

Hedgers: Carry all risk in the cash market for now.

Feed needs: NEW ADVICE -- Cover all corn-for feed needs in the cash market through mid-June. You should have all soybean meal needs covered in the cash market through May.

 

Cattle

Advice: We advise livestock producers to use the price weakness to cover three weeks of corn-for-feed needs in the cash market.

Price action: June live cattle fell 5 cents to $132.725, while August feeder futures gained $2.525 to $168.15.

Fundamental analysis: Strength in wholesale beef supported live cattle futures. Choice cutout values rose 64 cents early today to $264.92, a $4.50 gain since May 17. The beef strength isn’t surprising since Choice cutout historically tends to reach an annual peak during the week before Memorial Day. The belated nature of the recent rise suggests it may continue over the short run, but that is by no means assured. Still, sustained wholesale firmness could provide support for the discounted nearby live cattle contracts, even if cash prices continue last week’s decline.

Conversely, the USDA Cold Storage report Monday held negative demand implications for the livestock markets. April 30 beef stocks reached a record for the month at 531.7 million pounds. That represented a monthly decline of 4.1 million lbs. (0.8%), whereas the five-year average implied a 15.5-million-lb. drop during April. Frozen beef inventories increased 82.9 million lbs. (18.5%) from year-ago and stood 74.1 million lbs. (16.2%) above the five-year average.

In contrast, today’s sizeable breakdown in corn and wheat futures proved very supportive of feeder cattle prices, since those losses and the potential for downside followthrough suggested that feedyard managers would be able to pay more for replacement yearlings.

Technical analysis: Bears’ technical advantage was diminished Monday after the market generated little downside momentum from Friday’s bearish Cattle on Feed report. Indeed, an old trader axiom says a trending market that doesn’t actively react to fresh bullish or bearish news that fits the trend may be due for a reversal. Still, bulls couldn’t build upon Monday’s strong rebound today, with the June contract failing at initial resistance marked by its 20-day moving average (at $133.15) and closed slightly lower. A close above that the 20-day moving average would have bulls targeting the 40-day moving average at $134.71, then the $136.85 to $138.35 chart gap created by the April 25 breakdown. Initial support is marked by the contract’s 10-day moving average at $132.36, then at recent lows around $131.00. Bears are still targeting the pivotal $130.00 level.

The feeder cattle market’s ability to follow though upon Monday’s strong bounce brought the short-term technical advantage nearer to a balance. Bears probably still have the upper hand, given the setback from the daily high of $169.00. Initial resistance at that point is backed by the contract’s 20- and 40-day moving averages at $169.84 and $172.29, respectively. A move above the latter point would have bulls targeting the May 4 high at $177.50. Initial support is marked by the contract’s 10-day moving average at $166.75, with backing from the chart gap between yesterday’s close ($165.95) and today’s low ($166.15). A drop below that point would likely have bears again targeting yesterday’s early contract low at $162.80, then the psychological $160.00 level.

What to do: Cover all corn-for feed needs in the cash market through mid-June. You should have all soybean meal needs covered in the cash market through May. Be prepared to extend coverage on further price weakness.

Hedgers: Carry all risk in the cash market for now.

Feed needs: NEW ADVICE -- Cover all corn-for feed needs in the cash market through mid-June. You should have all soybean meal needs covered in the cash market through May.

 

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