Livestock Analysis | September 20, 2023
Price action: October lean hog futures rose 92.5 cents to $85.775, marking the highest close since July 31.
Fundamental analysis: Lean hog futures made a new for the move high today, marking over a month of the choppy uptrend since the August low. The CME lean hog index continues to base above the Sept. 5 low of $86.01, with today’s quote (as of Sept. 18) falling 35 cents to $86.58. The index is expected to rise tomorrow, with the preliminary quote for Sept. 19 rising 9 cents to $86.67. That would put October futures within $1.00 of the index, which has only happened one other day since May 2023. The sustained buying pressure in futures despite the lack of upward followthrough in the lean hog index shows the bullish short-term bias that traders maintain. How futures react near par in the coming days will be key in providing clarity on if futures will continue higher if the index continues to face resistance.
Wholesale pork prices continue base above the $100.00 level that has been significant resistance over the past couple months. Pork cutout fell 3 cents at midsession to $101.10, though only butts and bellies rose. Cutout staying above the $100.00 will be key in sustained gains across the pork complex.
Technical analysis: October lean hogs rallied for the third straight session; a feat not accomplished since June. The bulls retain full control of the technical advantage, though profit-taking is possible before the end of the week. Bulls are seeking to hold support at $84.85, which is backed by $83.60. Bulls are targeting resistance at $86.50, which is quickly backed by the August high of $86.75.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through September.
Price action: Cattle futures rebounded from early losses Wednesday, with nearby October live cattle closing $1.10 higher at $186.775 and October feeders surging $1.225 to $260.575.
Fundamental analysis: The supply of market-ready cattle in feedlots remains very tight, whereas packer demand apparently remains robust. That was signaled by the sale of about 1,300 head of Iowa-southern Minnesota cattle that traded at $186.00 Tuesday. While this is not a definitive signal of the direction likely to be taken by the cash market this week, that news, along with the futures strength exhibited lately, seemingly imply continued gains later this week.
Bears are banking on recent wholesale weakness to halt and eventually reverse the ongoing advance. Choice cutout is still sliding from quotes over $315.00 a couple of weeks ago, with today’s noon quote posting a drop of 78 cents to $301.34. Select cutout dipped $1.97 to $279.91. That kept the choice-select spread over $20.00, whereas the 10-year average for mid-September is $14.79. When combined with steer weights still within striking distance of their 5-year average (at 908 versus 900, respectively), these confirm the relative tightness of supplies. We still worry that sliding wholesale prices and greatly elevated beef retail costs to consumers are starting to reduce demand, but we doubt it will have a great deal of impact in the short run.
Meanwhile, feeder futures rebounded from their recent losses despite today’s bounce in corn and soybean meal values. Their premiums over the feeder index, now at $252.87, also represent a constraint on short-term upside potential. They’re clearly following the leadership of the fed cattle market.
Technical analysis: October live cattle futures essentially reversed the bearish signal sent by Tuesday’s weak action, keeping the short-term technical advantage with the bulls. The strong bounce from initial support at the contract’s 10-day moving average near $184.96 offered considerable confirmation on that score. Look for added support around the 20-day moving average near $182.84, which is backed by last week’s low of $182.575 and the 40-day moving average near $181.64. Bears are likely looking to force a drop below $180.00. Look for initial resistance in the range extending from today’s high of $186.925 to yesterday’s all-time top for a nearby contract at $187.45. Bulls are targeting the psychological $190.00 level.
Bulls still hold the short-term technical advantage in October feeder futures, although their grip isn’t as strong. They were able to trigger a rebound before bears could challenge support at the 20-day moving average near $257.78, with the bounce marking initial support at today’s low of $258.475. Look for solid support at the 40-day moving average near $254.81, with a drop below that point likely opening the door to a test of the psychological $250.00 level. The 10-day moving average represents initial resistance near $260.71, with bulls’ inability to push the daily high above $260.90 marking added resistance at that point. A breakout above that point would have bulls targeting last Friday’s peak at $264.675.
What to do: Get current with feed advice. Carry all production risk in the cash market for now but be prepared for some hedge coverage as we have demand concerns.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all corn-for-feed and soymeal needs covered in the cash market through September.
