Livestock Analysis | May 27, 2021
Price action: Lean hog futures ended higher, with July contracts up 30 cents at $119.650 per hundredweight and October up 42.5 cents at $94.50. June futures settled at $118.625, a seven-year high for a nearby hog contract.
Fundamental analysis: Much of trade was focused reports JBS SA, one of the top U.S. beef and pork processors, had production in North America and Australia disrupted by a ransomware attack. The disruption likely contributed to a drop in today’s cattle and hog slaughter numbers. Meatpackers slaughtered an estimated 390,000 head of hogs today, down from 485,000 a week ago, the USDA reported.
Several USDA cash market reports were delayed in the response to the ransomware attack. Strong pork markets and strong technical patterns continue to support futures, overshadowing a softer tone on the cash hog markets at the end of last week. Carcass values averaged $105.32 on national direct markets on Friday, down from $106.80 at the end of the previous week, according to USDA. Carcass cutout values ended last week at $126.59 per cwt., up from $120.86 the previous week.
Technical analysis: July hog futures notched a contract high at $120.400 and are up almost 12% from a swing low of $107.875 reached May 17. Bulls hold a near-term technical advantage and daily charts remain in a longer-term uptrend that may continue. July hogs have support around last week’s low of $114.90 and resistance at today’s contract high at $120.40.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures. Be prepared to add to third quarter hog hedges and establish fourth-quarter coverage.
Hedgers: You should have 25% of third-quarter production hedged in July hog futures at $95.375.
Feed needs: You should have all soybean meal needs covered in the cash market through July, along with 50% for August and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
Price action: Cattle end lower but above the early session lows. August Live cattle were down $2.00 at $116.60 and August feeder cattle fell $2.20 to $149.15.
Fundamental analysis: A major cyber-attack on the global meat producer JBS brought the company’s slaughter and fabrication operations to a halt. This sent shock waves throughout the beef and pork markets. While everyone is hopeful for a quick resolution and plants will be running again as early as tomorrow there is no word from the company. Prices plummeted near the new $5 limit in live cattle and $6.25 limit in feeders before paring early losses into the close. Friday’s CFTC Commitment of Traders data showed very little fund activity in week ended May 25. But funds were still net long some 58,000 contracts and likely exited more this morning.
USDA did not report any midday meat price data today because of the outage. It did estimate today’s slaughter at 94,000 head, down from 121,000 head a week ago. The JBS shutdown follows what was a disappointing finish to last week’s kill pace, which saw a Saturday slaughter of just 34,000 head and a weekly total of just 629,000, down from the 669,000 of the prior week, and below the 645,000+ expected.
The cash beef trade was mixed last week. The choice cutout pushed to a new high and gained $5.80, while the select was $1.41 lower at week’s end. A top in the beef market was expected this week but it may be dependent on how quickly the JBS plants come back into operation.
Technical analysis: August live cattle touched $114.625 this morning but rallied back to close above the opening at $116.40, a possible sign of a selling exhaustion. But it would take a close above $118.60 to turn the trend higher. Daily momentum is down but reaching oversold levels. August feeders left a downside gap at $151.20 to $149.35 this morning and this will be strong overhead resistance on rally attempts. Today’s low at $145.10 is key support.
What to do: Get current with feed advice. Be prepared to extend corn coverage on a drop to the $6.00 area in July futures and $5.00 in December futures.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through July, along with 50% for August and 25% for September. You have all corn-for-feed needs covered in the cash market through June, along with 25% of third-quarter needs.
