Hogs
Price action: October lean hog futures surged $3.075 to $75.925 and settled near session highs. August lean hog futures expired at noon, firming 20 cents to $90.10.
Fundamental analysis: Lean hog futures surged on stronger than expected trade in the cash market. After trending lower from the July peak for the past three weeks, October lean hog futures boasted a bullish breakout today, negating the recent downtrend. Traders anticipated a downturn in the cash market and were vindicated with weakness over the past week. The CME lean hog index is down 58 cents to $90.34 as of Aug. 12. The preliminary calculation puts the index down another 16 cents to $90.18 tomorrow. While the index is projected lower, losses the last couple of days are a far cry from the steep declines seen earlier this week, when the index was down $1.87 in two days. The second day of the preliminary calculation (remember the index is a two-day average) even points to modest strength, showing the recent downtrend is slowing remarkably. Strength in the wholesale market has likely attributed strength in the cash index as strong grocer demand has stabilized pork cutout in the past few days. Pork cutout is up another 53 cents to $100.86 at midsession, once again led by strength in bellies. While gains have been small, prices still going up despite movement totaling well over 300.00 loads is a testament to the strength of pork demand, indicating a potential shift in consumer preferences.
Technical analysis: October lean hog futures led the hog complex higher today, negating the recent downtrend. Bulls’ next target is closing prices above resistance at $76.40, which is bolstered by the July 26 for-the-move high close of $78.20. The 40-day moving average will be a key pivot tomorrow at $75.70, while sellers likely face support at $74.80 then yesterday’s close at $72.85.
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 August.
Cattle
Price action: The cattle market broke out to the two-week highs Wednesday. Expiring August live cattle futures rose 60 cents to $184.60, while most-active October surged $1.375 to $182.125. August feeder futures climbed $1.425 to $247.90, which fell short of the $2.175 rise posted by October feeders, which reached $242.10.
Fundamental analysis: Bears likely started this week thinking they had swung market fundamentals and momentum in their favor, especially after packers forced cash prices over $3.00 lower, to $191.34 last week. And this week’s early trade suggests further cash slippage; a few head (280 steers) traded at $188.00 in Iowa-southern Minnesota yesterday. However, the wholesale market continues exhibiting great strength; Choice cutout climbed to $318.30 at yesterday’s close, while Select remained above $300 yesterday and rose another 45 cents to $301.06 at noon today. Choice cutout did set back today but remained above $314.00. We also think retail beef prices are still likely to elicit strong demand from consumers, since July steak prices rose just 2.1% from comparable month- and year-ago levels. Grocers will probably buy beef rather aggressively for another two weeks, since Labor Day is still almost three weeks away. Thus, while cash prices may slip again this week, we would be rather surprised if they don’t rebound later this month.
One is almost forced to think the feedlot industry has become very concerned about the fed cattle outlook for fall and winter, since the CME feeder index has plunged lately. It was quoted at $257.72 on August 2, but the latest figure, for Monday, came in at just $245.09. Depressed corn and soybean meal prices certainly aren’t signaling a big surge in feed costs, and the supply of calves and yearlings available to feedlots is almost surely approaching a cyclical low. Thus, we’re inclined to think recent losses by the feeder index, and to some extent feeder futures, are overdone.
Technical analysis: Despite the drop in fed cattle prices from their late-July highs, one can easily argue that today’s price advance flipped the short-term technical advantage to the bulls, especially since it almost surely negated what had previously looked like a big “bear flag” formation on the October live cattle chart. It’s likely no coincidence that today’s low of $180.45 essentially matched the 10-day moving average near $180.51. Psychological support at the $180.00 level is also looking strong. Still, a close back below that level would have bears again targeting the August 5 low of $176.20. Today’s high placed initial resistance at $182.40. That’s backed by the contract’s 20- and 40-day moving averages near $183.33 and $184.00, respectively, which are further reinforced by psychological resistance at $185.00.
Bears probably still hold the short-term technical advantage in October feeder futures, but today’s action almost surely weakened their dominance. The rally filled the small Aug. 2-5 chart gap between $242.55 and $242.40, although the late setback likely left the gap as initial resistance. It’s backed by the daily high of $242.75. A close above that point would have bulls targeting the very-psychologically important $250.00 level. Today’s action established tentative technical support at the contract’s 10-day moving average near $240.95. Expect psychological support around $240.00, but a close below that point would reopen the door to a test of last week’s low of $235.35.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Carry all production 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 August.