Livestock Analysis | September 21, 2021
Price action: October lean hogs fell 60 cents to $84.375 per hundredweight, while most-active December declined 62.5 cents to $73.60.
Fundamental analysis: Ideas that cash hogs and wholesale pork will continue sliding seemed to weigh upon futures again. Although historical patterns suggest an intermediate-term bounce in futures is overdue, the cash and wholesale markets continued a recent slide. Pork cutout values plunged almost $3.00 yesterday, to $101.36, and traders were apparently not very confident today’s midday quote, which jumped $4.18, would be sustained through the end of the day. The preliminary CME Lean hog index dropped to $93.56, the lowest since March 22 but still over $9.00 above October futures.
Still, a short-term rebound cannot be ruled out, especially with beef cutout values showing signs of stabilizing and history suggesting the hog/pork complex tends to rally through late September and early October. The fact that the nearby contracts are still trading at substantial discounts to the latest spot quotes also offers hope to bulls.
Technical analysis: Bears rather clearly hold the technical advantage at this point, with a clear downtrend present on the charts. They’re likely looking for the nearby October contract to again drop below 10-day moving average support at $83.93 and retest solid support in the $80.00 to $81.00 range soon thereafter. A breakdown to the $75.00 area seems quite possible if October closes below $80.00.
However, last week’s rebound did push the October future above its 10-day moving average and it has remained above that level despite recent slippage. In fact, it would be easy to construe the action posted over the last week as a traditional ‘bull flag’ on the October chart. If so, that suggests a short-term push back above pivotal 40-day moving average resistance at $87.28. An advance above that level might easily be followed by a test of the $90.00 level.
What to do: Make sure you’re current on feed advice. Be prepared to add fourth quarter hog hedges on a price recovery.
Hedgers: You currently have all risk in the cash market.
Feed needs: Cash coverage for meal stands at 75% for September and 25% for the fourth quarter. You should be hand-to-mouth on corn for feed needs.
Price action: October live cattle futures fell 32.5 cents to $122.45 per hundredweight, while December live cattle fell 27.5 cents to $127.80. November feeder cattle rose 32.5 cents to $156.95.
Fundamental analysis: Cattle futures erased early gains to end mixed amid continued weakness in the wholesale beef market. Choice cutout values fell 56 cents early today to $315.10, after posting the first increase in over three weeks yesterday. Still, recent signs of stabilization in beef prices may have helped establish a floor under the future market, portending sideways trade for the time being. Steady to weaker cash prices are expected this week, though strong cash opinions won’t likely be formed until around midweek. Live steers last week averaged $123.88, down 91 cents from the previous week and the second consecutive weekly drop, according to USDA reports.
USDA’s next Cattle on Feed report Sept. 24 is expected to reflect continued contraction in the U.S. herd. In its previous report, USDA estimated cattle placed in feedlots during July at 1.739 million head, down 8.1% from the same month in 2020. As of Aug. 1, an estimated 11.074 million head of cattle were on feed, down 1.9% from a year earlier.
Technical analysis: December live cattle rose as high as $129.075 early today before fading. Market bears still hold an overall advantage. Chart levels to watch include last week’s high at $130.45 and last week’s low at $125.675. In October futures, downside objectives include a close below the June low of $119.825. Upside objectives include closing October futures above resistance at $128.00.
What to do: Get current with feed advice. Futures are signaling a short-term top is in place. We may add hedges for fed cattle soon.
Hedgers: Carry all risk in the cash market for now.
Feed needs: Cash coverage for meal stands at 75% for September and 25% for the fourth quarter. You should be hand-to-mouth on corn for feed needs.
