Livestock Analysis | September 7, 2021
Price action: October hog futures led the complex lower Tuesday, falling $1.475 per hundredweight to $88.10.
Fundamental analysis: The livestock industry appears quite bearish at this juncture, despite generally supportive fundamentals for the markets. Bears are likely anticipating persistent seasonal weakness during the coming weeks, with the ongoing breakdown in live cattle futures weighing heavily upon hogs as well. This negative sentiment is prevailing despite the hog market’s decided tendency to post an intermediate-term low just after Labor Day and rebound modestly over the following five to six weeks. Despite having the preliminary CME index quote for last Friday falling below the $100 level, to $99.30, for the first time since early April, the cash market is showing some signs of firming. For example, carcass cutout values surged $8.16 early today to $116.31, led by a jump of nearly $33 in hams, according to USDA. Cutout values remain near five-month lows reached last week. If the CME index rebounds, hog futures could stage a comeback.
Technical analysis: Bulls can take some comfort that October hog futures held near support at the 20-day moving average of $88.14 at the end of the day. The contract has essentially created a wedge formation on the chart since peaking at $97.975 in mid-June then diving to $80.90 later that month. The August 24 low at $86.05 represents solid support, whereas last week’s high at $91.425 marks stiff resistance. A breakout of the wedge in either direction could portend a larger move.
What to do: Get current with 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 100% for July, 100% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 100% for August and 50% for September.
Price action: October live cattle futures fell $1.05 to $123.75 per hundredweight, the lowest closing price since $123.70 on June 7. October feeder cattle futures fell $2.425 to $160.05, the lowest close since mid-July.
Fundamental analysis: Live cattle futures extended last week’s 3.3% slide as wholesale beef prices remained under pressure and speculators continued to shed long positions. Ag commodities in general were under fund-driven pressure to start the week, with corn futures closing at a five-month low ahead of USDA’s Sept. 10 Crop Production report, which is expected to boost U.S. corn and soybean harvest estimated. Choice cutout values fell 95 cents early today to a three-week low of $335.47, on movement of about 34 loads, USDA reported.
Brazil’s ag ministry confirmed two cases of atypical bovine spongiform encephalopathy (BSE), one in Mato Grosso and the other in Minas Gerais. As a result, the country suspended beef exports. But importers in China, Brazil’s top customer, hope the suspension is short-term since the cases were atypical.
Technical analysis: Cattle futures have undergone a severe technical breakdown, as lead contracts pushed below several moving averages and other key chart support levels over the past week. October live cattle fell as low as $123.675, the contract’s lowest intraday price early June and near the 200-day moving average, just above $123.00. Other chart levels to watch include the June 1 spike low to $119.825.
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 100% for July, 100% for August, 75% for September and 25% for the fourth quarter. Cash coverage for corn needs stands at 100% for July, 100% for August and 50% for September.
