Hogs
Price action: June lean hog futures rallied $1.175 to $100.275 and closed on session highs.
Fundamental analysis: Hog futures saw another day of gains and are trading in the upper end of the recent range as cash fundamentals continue to support futures. June lean hogs encountered technical selling pressure that capped gains today. The CME lean hog index is up another 11 cents to $93.05 as of May 23, extending the seasonal climb. Bulls were encouraged to see the preliminary calculation putting the index up another 47 cents higher to $93.52 for tomorrow’s quote, which would be the largest gain in a week. Resurgent strength in pork cutout likely spilled over to the cash market early in the week. Key will be how cash hog prices do amid today’s downturn in cutout. Wholesale pork slid $1.08 to $102.65 this morning, giving up a significant portion of yesterday’s gain. Losses in bellies led the market lower, but a $10.34 surge higher in ribs limited the downside. Attention will be on the cattle market as we end the week, as live cattle futures have closed lower for two consecutive sessions. A breakdown in cattle would be hard to shake and could bring spillover selling pressure into hogs.
Technical analysis: June lean hog bulls are building momentum and challenged the upper end of the recent range late in today’s session. Next resistance stands at $100.70 and is reinforced by resistance at the May 16 high of $101.60. Bulls are seeking to hold support at the psychological $100.00 mark, which is reinforced by the 10-day moving average at $99.25. A break below that mark would challenge support at $98.40, which capped the downside last week.
What to do: Get current with feed coverage.
Hedgers: You are carrying all production risk in the cash market.
Feed needs: You have all corn-for-feed and soybean meal needs covered in the cash market through July.
Cattle
Price action: June live cattle fell $1.20 to $213.925, while August feeders closed $2.525 lower at $295.625.
Fundamental analysis: Cattle futures held an inside range, supported technically by the 10- and 20-day moving averages. However, fundamental support from recent cash and wholesale firmness continue to ward off sellers. Last week, cash cattle averaged a record for the fifth consecutive week. Meanwhile, wholesale values continue to remain rather robust, with Choice surging $2.92 to $364.77 in the noon report, while Select rose a modest 12 cents to $350.95. Movement totaled 69 loads. Increasing wholesale values have eased packer margins slightly, though they still remain in the red. Slaughter inventories are expected to be a record low, with packers using that to their advantage to regain some bargaining power with retailers. However, cattle owners will surely look to maintain the upper hand in cash negotiations.
Feeders extended Tuesday’s losses, with some pressure likely a result of USDA’s announcement of a significant escalation in its efforts to fight New World Screwworm (NWS) through a strengthened bilateral strategy with Mexico. The government has pledged $21 million to modernize a fruit fly facility in Metapa, Mexico, which will be converted to produce 60- to 100-million sterile NWS flies per week–dramatically expanding current capacity and enhancing the reach of the sterile insect technique.
Technical analysis: June cattle held a close above the 10- and 20-day moving averages, trading at $213.81 and $213.46, though bulls will continue to be limited by Tuesday’s high of $216.425, which is backed by the May high of $218.625. However, solid support below the 10- and 20-day moving averages, layered at $210.76, $209.02 and at the 40-day moving average of $208.06 should continue to lean in bulls’ favor.
What to do: Get current with feed coverage. Carry all production risk in the cash market for now.
Hedgers: Carry all production risk in the cash market for now.
Feed needs: You have all corn-for-feed and soybean meal needs covered in the cash market through July.