Livestock Analysis | September 20, 2022
Price action: October lean hog futures fell 50 cents to $95.975, while deferred contracts posted modest gains.
Fundamental analysis: Hog futures ended mostly firmer despite uncertainty over the cash market’s performance in coming weeks, as reflected by a relatively wide trading range in the nearby October contract ($1.90) and the slightly lower close. There are indications the CME lean hog index is putting in a bottom, as the benchmark gained 45 cents today to $98.42 (as of Sept. 16). Tomorrow’s index is expected to decline 6 cents. Traders are likely to maintain a slight discount in the lead contract as any upturn in the cash index is likely to be temporary before seasonal pressure resumes. October futures are currently about $2.45 under the index, relatively stable over the past week.
We expect a resumption of the recent cash market rebound, especially after last week’s hog kill was estimated at 2.465 million head, down 3.1% from the comparable year-ago level. If that marks the start of similar year-to-year reductions in hog supplies, it suggests hog and pork prices will be significantly stronger than fall 2021. Pork cutout values edged up 57 cents to $106.45 early today, with strength in loins and bellies offsetting a dip in ham quotes. We still think pork demand and prices will remain well above year-ago levels this fall.
Technical analysis: Bulls still hold a short-term technical advantage in October hog futures. Bears were able to power a sizeable drop to today’s low at $95.55, which now represents initial support, but they couldn’t force a test of stouter support at the contract’s 40-day moving average of $95.14. It’s backed by the 10-day moving average at $94.44, but a drop below that level would then have bears targeting the 20-day moving average at $92.99, then the $90.00 level. Monday’s high probably continues marking initial resistance at $97.05, with backing from today’s top at $97.45. A push above the latter point would have bulls targeting the Aug. 1 high of $98.45, then the psychological $100.00 level.
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 rose 57.5 cents to $146.30, the highest settlement for a nearby contract since August 2015. December live cattle rose 17.5 cents to $151.075 and hit a five-month high. October feeder cattle fell $2.275 to $180.025.
Fundamental analysis: Nearby live cattle futures ended firmer on expectations for further near-term cash market strength. Live steers last week averaged $143.19, up 71 cents from the previous week, and traders expect additional gains, though trade likely won’t be established until later this week as the market awaits USDA’s monthly Cattle on Feed Report Friday. Wholesale beef prices were mixed early today as demand remains firm. Choice grade beef cutout values fell 61 cents to $251.84. Select grade gained $1.82. Movement was 83 loads at midday. The Choice-Select spread narrowed to $24.13, suggesting tightness in cattle supplies. Feeder cattle futures were under pressure today from solid gains in corn.
USDA’s Cattle on Feed Report is expected to show feedlot placements in August fell 2.7% from the same month last year, based on a Reuters survey. The anticipated decline would mark the sixth month out of eight this year that feedlot placements decline versus year-ago levels, reflecting continued shrinkage of the U.S. herd amid high feed costs.
Technical analysis: Live cattle futures bulls hold a solid near-term technical advantage. December live cattle futures today rose within 15 cents of the contract high before backing off to close near the session low. Bulls next upside objective is to close December futures above solid resistance at the contract high of $152.375. The next downside objective for bears is closing prices below solid support at $149.00. First resistance is seen at $152.375, then $154.00. First support is seen at this week’s low of $151.60, then $150.00.
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.
