Livestock Analysis | September 5, 2023
Price action: Hog futures moved mostly higher Tuesday but couldn’t sustain early highs. Nearby October futures rose 12.5 cents on the day to close at $83.175.
Fundamental analysis: The cash hog market continues to suffer from seasonal pressure, as exemplified by the CME confirming last Thursday’s quote of $87.77, down $1.49, indicated by last Friday’s USDA data. In addition, today’s preliminary quote for Friday through Monday fell another $1.21 to $85.56. However, today’s close for the October contract was only about $3.50 under the latest ‘unofficial’ quote for the index. Given the fact that the index routinely fell over $1.00 per day during late August, this suggests the two could be trading near par by the end of this week. Thus, recent October futures action implies traders expect the cash market to trade sideways over the next six weeks until the October contract expires (on October 13). Actually, they probably expect a short-term cash rally, followed by an early-October decline.
Today’s midsession pork cutout report suggests that might indeed be the case, since a $15.00-plus jump in pork belly values, along with sizeable rib and ham gains, powered a $4.59 jump in pork cutout. The five-year average for pork cutout indicates a historical tendency to rise about $6.00 from early September into mid-October.
Technical analysis: Although today’s futures action sent a negative one-day technical signal, bulls still hold the short-term technical advantage. A breakout above initial resistance at the August 30 high of $83.825 would face stiffer resistance at today’s high of $84.725, but a rise beyond that point would have bulls targeting the August 1 high of $86.75. Conversely, a drop below initial support marked by today’s low of $83.15 would face solid support at the contract’s 40-, 10- and 20-day moving averages near $82.27, $81.34 and $80.93, respectively. A close below the latter point would open the door to a test of the August 16 low of 77.75.
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: October live cattle fell 20 cents to $179.95 and nearer the session low. October feeder cattle lost 35 cents at $254.30 and near mid-range.
Fundamental analysis: The cattle futures markets paused and saw some more price consolidation on the first trading day of the holiday-shortened trading week. The U.S. dollar index pushing to a six-month high today did somewhat limit buying interest in cattle futures. However, solid gains in crude oil futures to a 10-month high today is a bullish underlying element for the raw commodity sector, including the cattle markets.
Cash cattle last week traded lower for the fourth straight week, coming at an at average of $182.50, down 25 cents. We expect steady-weaker cash prices this week. Producers have been surprisingly willing to cut their asking prices, as northern supplies may be higher. Still, front-end cattle supplies are tight and wholesale beef prices are holding up fairly well. The average five-area cash cattle price remains above $180.00 for a record 14th consecutive week.
The noon report showed wholesale beef prices with good gains. Choice grade rose $3.42 to $317.91, while Select grade was up $1.92 at $292.21. Movement at midday was 45 loads. The Choice-Select spread at midday was $25.70.
Technical analysis: The live and feeder cattle futures bulls have the firm overall near-term technical advantage. The next upside price objective for the live cattle bulls is to close October futures above solid resistance at the contract high of $185.75. The next downside technical objective for the bears is closing prices below solid technical support at the August low of $177.625. First resistance is seen at last week’s high of $182.30 and then at the August high of $183.725. First support is seen at last week’s low of $179.425 and then at $177.625. The next upside price objective for the feeder bulls is to close October futures prices above technical resistance at $260.00. The next downside price objective for the bears is to close prices below solid technical support at the August low of $248.05. First resistance is seen at the contract high of $257.925 and then at $259.00. First support is seen at today’s low of $252.85 and then at $251.00.
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.
