Livestock Analysis | September 14, 2022
Price action: October lean hog futures fell $1.05 to $94.70, down from a four-week-high close Tuesday.
Fundamental analysis: October lean hogs led declines in futures after the market generated little followthrough buying interest from Tuesday’s rally as slumping cash fundamentals continued to hang over the market. The CME lean hog index fell 62 cents to $97.67 (as of Sept. 12), a seven-month low, and is expected to drop another 9 cents Thursday. October futures have sharply narrowed a discount to the index, indicating traders expect the cash market to bottom soon. As of today’s close, October futures’ discount to the index was $3.045, down from $14.735 at the end of August. Pork cutout values rose 38 cents early today to $105.15 as strength in hams and ribs offset a drop of nearly $9 in bellies. Movement at midday totaled nearly 147 loads.
China will sell 15,000 MT of frozen pork stocks from state reserves on Sept. 17. We reported the second batch of pork sales yesterday, though no date or tonnage were provided at that time. Last week China sold 37,000 MT of state-owned pork stocks.
Technical analysis: Hog futures retain a bullish bias, though today’s weak close in the October contract may lead to some followthrough selling in coming days. October hogs settled under the 40- and 50-day moving averages around $95.10 and $94.70, respectively, which now represent initial resistance, followed by Tuesday’s intraday high of $96.075, the contract’s highest intraday price since Aug. 23. Initial support comes in at the Aug. 30 high of $94.40 and the 100-day moving average around $93.55. A break under the 20- and 10-day moving averages around $92.65 and $92.35, respectively, may prompt bears to target the $90.00 level and the September intraday low at $89.125.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.
Price action: Live cattle futures posted modest followthrough to Tuesday’s losses today, with October cattle dipping 45 cents to $144.35. October feeder cattle rose 90 cents to $181.425.
Fundamental analysis: Weakness in wholesale beef weighed on live cattle futures. Choice boxed beef fell $2.46 early today to $254.20, the lowest price since mid-March, as the market continued its fade from plus-$260.00 levels over much of the summer. The weakness likely reflects a consumer and retailer shift away steaks and other summer grilling cuts to roasts, which are routinely priced well below steaks. The 10-year average suggests cash prices will stabilize around current levels during September, then turn seasonally higher later this month or in early October, with the subsequent rally carrying prices about $8.00 higher by early December. Meanwhile, about 500 steers changed hands around $143.25 in Iowa yesterday, which seems to bode well for this week’s cash trading.
In contrast, feeder futures rebounded modestly after diving Tuesday. If we’re correct in thinking the fed cattle market is set to rally on a seasonal basis, this seems to bode well for the yearling outlook as well. But the Monday-Tuesday breakdown in feeder futures seemed to confirm a downward trend in the feeder market. USDA’s lower than expected harvest estimates for corn and soybeans also suggest the feeder market may come under sustained pressure.
Technical analysis: Bulls hold a short-term technical advantage in October live cattle, although today’s drop carried the price down to support at the 20-day moving average of $144.32. Solid support persists at the contract’s 40-day moving average at $143.77, but a drop below that level would open the door to a test of last week’s low of $142.275, then the $140.00 level. Today’s high places initial resistance at $144.125, then Monday’s high at $146.10. That resistance likely extends to the Aug. 17 high of $146.25, with a push above that point almost surely having bulls targeting the contract high of $147.50.
October feeder futures seemed set to retest its August high at the end of last week’s trading, but the losses posted Monday and Tuesday flipped the technical advantage to the bears. Today’s low placed initial support at $179.80, with backing from Tuesday’s low at $179.00. A drop below that point would have bears targeting the psychological $175.00 level. Today’s high marks initial resistance at $181.90 and is backed by resistance at yesterday’s high of $183.125. Additional resistance extends from the 10-day average at $183.80 to the 40-day moving average at $184.97.
What to do: Be prepared to extend feed coverage when market bottoms are in place.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You are hand-to-mouth on corn-for-feed and soybean meal needs.
