Livestock Analysis | May 25, 2023
Price action: Hog futures continued their recent dive Thursday, with nearby June futures tumbling another $2.15 to $77.65. The July and August contracts plunged about $3.50 on the day.
Fundamental analysis: Industry pessimism about the hog outlook overwhelmed the bulls again Thursday despite generally supportive cash and wholesale news. This latest breakdown was triggered by Wednesday’s USDA Cold Storage report, which indicated a 31.6 million pound surge in U.S. pork stocks last month. A rise is normal, with the five-year average running 16.9 million, but the rise implies demand is not keeping up with production. As was the case in March, elevated ham prices seemed to account for much of the latest rise. That is, the pork industry normally rebuilds ham inventories quickly after Easter, with the 10-year average rise reaching about 22 million pounds. But high retail costs apparently kept consumers from buying aggressively this Easter, so 33 million pounds of hams went into freezers last month.
Still, the latest official quote for Tuesday’s hog index climbed 58 cents to $80.67 today, while Wednesday’s preliminary figure rose another 13 cents to $80.80. And after falling sharply yesterday, pork cutout rebounded $2.91 to $83.78 at midsession today. Nevertheless, today’s futures drop put all three of the summer hog contracts at discounts to the index. That is despite the market’s history of robust strength during summer. The drop left the June contract at a $3.15 discount with just over two weeks until expiration.
Technical Analysis: Bears clearly hold the short-term technical advantage in June hog futures at this juncture, although today’s price action could be seen as having formed a ‘hammer’ reversal signal on the candlestick chart. The contract’s RSI momentum indicator also fell to 28.25, implying the market is technically oversold. Today’s low places initial support at $77.025, but a drop below that point would open the door to a test of the psychological $75.00 level. Look for initial resistance between today’s high of $79.25 and the $80.00 area. A close above the latter point would have bulls targeting the 10-day moving average near $83.07, then the 40-day moving average at $86.52.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed needs covered in the cash market through May.
Price action: June live cattle rose $1.20 to $167.30 and near the session high. Prices hit a contract high today. August feeder cattle rose 17.5 cents to $234.70 and nearer the session high.
Fundamental analysis: The live and feeder cattle market bulls remain strong, both fundamentally and technically, which suggests still more upside for both in the near term. Some upbeat U.S. economic data released today and reports the U.S. debt-limit-increase talks are making progress, put the general marketplace in a better mood, which also supported buying interest in cattle futures. Today’s stronger-than-expected 1Q GDP reading of up 1.3% (a rise of 1.1% was expected) will help send Americans into the Memorial Day holiday weekend in upbeat moods—meaning they are more likely to buy beef steaks to put on their grills.
Cash cattle trade began Wednesday at higher prices, with cash sources reporting trades as high as $182 live and $286 dressed in northern regions and around $171 in the southern Plains. The northern market was up sharply from last week, while prices were steady to $1.00 higher in the southern Plains. USDA reported Monday-Wednesday cash steer trading averaged $177.39, up 58 cents from the same period last week. The latest steer dressed weight reading for the week ended May 13 is 891 pounds. That matched the year-ago figure. The noon report showed wholesale beef prices rose 64 cents for Choice grade, to $298.94. Select grade firmed $1.14 to $284.93, narrowing the Choice/Select spread to $14.01. Movement at midday was light at 56 loads.
The USDA Cold Storage report Wednesday afternoon showed frozen beef stocks at 448.0 million lbs. at the end of April, down 29.8 million lbs. (6.2%) from March. That’s double the five-year average decline of 15.1 million lbs. during the month. Meantime, USDA reported net U.S. beef sales of 18,300 MT for 2023, a 5% increase from the previous week and 15% above the four-week average.
Technical Analysis: The live and feeder cattle futures bulls have the solid overall near-term technical advantage. Prices are in uptrends on the daily bar charts. Live cattle bulls' next upside price objective is to close June futures prices above solid resistance at $170.00. The next downside technical objective for the bears is closing prices below solid technical support at $163.00. First resistance is seen at today’s contract high of $167.45 and then at $170.00. First support is seen at today’s low of $166.00 and then at $165.00. The next upside price objective for the feeder bulls is to close August futures prices above technical resistance at $240.00. The next downside price objective for the bears is to close prices below solid technical support at $226.00. First resistance is seen at the contract high of $235.725 and then at $237.00. First support is seen at today’s low of $232.75 and then at this week’s low of $231.50.
What to do: Get current with advised feed coverage. Be prepared to extend coverage when the markets signal lows are in place.
Hedgers: Carry all risk in the cash market for now.
