Livestock Analysis | September 15, 2022
Price action: October lean hogs rose $1.35 to $96.05, the contract’s highest close since Aug. 17.
Fundamental analysis: Hog futures climbed to four-week highs amid signs a recent cash market slump is abating. The CME lean hog index fell 9 cents to $97.58 (as of Sept. 13), a seven-month low, but still the smallest daily decline in weeks. Friday’s index is expected to rise 19 cents, which would be the first daily gain since Aug. 17. Based on Friday’s expected quote, the cash index is just $1.53 above October futures, a sharp narrowing from $14.735 at the end of August.
USDA earlier today reported net weekly U.S. pork sales of 25,100 MT for 2022, primarily for Mexico (9,900 MT, including decreases of 200 MT), China (4,700 MT, including decreases of 100 MT) and Japan (4,700 MT). Recent USDA retail data showed pork prices in the Midwest posting varied year-over-year gains, with bacon up 3.9% in August, chops up 4.7% and hams up 12.4%. Given the strength of wholesale and retail beef prices, pork prices indicate consumer demand remains solid.
Technical analysis: October lean hogs traded a $1.50 range and ended the session mid-range. Bulls maintain a near-term technical advantage as support was tested and held at $95.60, while resistance at $97.00 proved just slightly out of reach. Support went untested at $94.20, $93.70. The 40-day moving average at $95.06 will also serve as near-term support.
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: October live cattle surged $1.275 to $145.625. October feeders fell 50 cents to $180.925.
Fundamental analysis: Live cattle futures rose behind signs of firming in the cash market. USDA-reported live steers averaged $142.73 the first three days this week, up $1.31 from the comparable week-prior result. This suggests stronger packer demand and/or tighter market-ready cattle supplies, which was impressive given recent wholesale price weakness. Choice beef cutout values fell another 64 cents to $252.83 early today, whole Select edged up 42 cents to $230.53. Although the Choice-Select spread narrowed to $22.30, it’s still historically wide, which indicates the supply of market-ready animals remains tight. Yesterday’s cash action, as well as the bullish futures reaction, suggests cash prices will edge higher into the weekend.
Feeder futures were surprisingly weak considering live cattle strength. Corn, wheat and soybean futures were generally weak, which would normally encourage feeder buying, and while soymeal futures rose modestly, it’s doubtful that those gains presented a serious obstacle to feeder market bulls. Long-term weather forecasts may be weighing on feeder market, as the Southwest is expected to remain extremely dry over the next 90 days, indicating cattle producers in that region may have to liquidate herds due to a lack of forage and hay.
Technical analysis: The recent rally in live cattle futures seemed in danger of stalling after this week’s early action, but today’s surge again gave bulls a strong technical advantage. The close just below Monday’s high of $146.10 again made that point initial resistance, with a push above that level likely opening the door to a test of the $147.50 contract high posted April 22. A breakout from that point would have bulls targeting the psychological $150.00 level. Look for initial support around $145.00, with secondary support likely emerging in the area including the 10-day moving average near $144.73, today’s low at $144.50 and the 20-day moving average near $144.31. Those are backstopped by the 40-day moving average at $143.88.
Bears still hold a short-term technical advantage in feeder cattle, although today marked the second consecutive “inside day” in the wake of Tuesday’s breakdown. Look for initial support at today’s low of $180.175, with backing from the psychologically important $180.00 level. A drop below Tuesday’s low at $179.00 would then have bears targeting $175.00. Today’s high placed initial resistance at $182.10, with added resistance likely to emerge at Tuesday’s $183.125-high. Bulls would then face growing resistance at the contract’s 10-, 20- and 40-day moving averages near $183.54, $184.10 and $184.90, respectively.
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.
