Hogs
Price action: Stable cash and wholesale prices seemed to translate into mixed futures action Wednesday, with nearby October futures skidding 40 cents to $81.675, while the deferred contracts posting modest gains.
Fundamental analysis: A modest one-day advance in cash prices Monday limited that day’s drop in the two-day hog index quote to just 4 cents, to $87.82.The cash market then resumed its slide yesterday, with the preliminary calculation of the index putting the Tuesday quote at $87.45, down 37 cents. History suggests the cash market will continue declining into next week, but could stabilize or turn higher soon thereafter. Recent history has the September market proving generally weak, but it hasn’t been terribly uncommon for cash prices to prove surprisingly strong after Labor Day.
The fact that wholesale prices are holding relatively firm for this time of year suggests the stable-to-firm August pork sector performance could persist into September. Neither can a September advance be ruled out. After having undergone its usual dive from Friday’s high to Monday’s low, pork cutout rebounded modestly Tuesday and added another 44 cents to $96.59 at noon today. Grocers apparently finished their purchases of beef for Labor Day last Friday, as indicated by sizeable losses Monday and Tuesday. We suspect they’ll continue buying pork rather actively, which would probably translate into sustained hog and pork firmness.
Technical analysis: Bulls clearly own the short-term technical advantage in October lean hog futures, especially in the wake of Tuesday’s strong surge above the psychologically important $80.00 level. Look for an initial zone of support between today’s low of $81.525 and Monday’s high at $81.45, with strong backing at the $80.00 level. A drop below that point would have bears again targeting the 40-day moving average (at $75.30) and the $75.00 level. Expect initial resistance in the $82.425 to $82.475 range, as marked by the highs posted today and yesterday. That’s likely backed by resistance around the May 13 low of $83.70, then the psychological $85.00 level.
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: Sustained wholesale weakness likely undercut cattle and feeder futures Wednesday. Expiring August live cattle (which go off the board at noon Friday) fell $1.425 to $183.75, while most-active October slid 77.5 cents to $178.625. August feeder futures, which expire at noon tomorrow, sagged 65 cents to $243.55 and most-active October dropped 62.5 cents to $241.30.
Fundamental analysis: This week’s early losses in beef cutout values strongly suggest grocers completed their buying for planned Labor Day features last Friday. For example, Choice beef cutout ended last week at $317.34, which marked its highest ending-day level since early August, but it fell about $1.50 Monday, then almost $4.00 Tuesday. It continued sliding today, with the midsession quote of $309.95, marking a $2.02 drop from Tuesday’s close. Cash cattle trading was virtually nonexistent Monday and Tuesday, with the early-week standoff seeming likely to last late into the week. Packers are likely working to protect margins that recently turned positive. Southern Plains producers were probably encouraged by last week’s relatively firm prices, whereas those in the north, especially in Nebraska, were likely irritated by the big losses suffered last week and are determined to hold out for a better outcome this week.
We think the short-term outlook will be greatly influenced by the aggressiveness with which grocers feature steaks this coming weekend. If they continue their summer 2024 pattern of limiting price increases, especially versus year-ago levels, they seem likely to see a good consumer demand response. Otherwise, bigger cash and futures market losses are likely coming.
Feeder traders apparently expect firmer cash prices for yearlings this week, since the August futures quote ended the day about 75 cents over the latest quote for the feeder index at $242.63. As a reminder, feeder futures cash-settle against the index, with the final futures quote being for the index on the last Thursday of the month (with the exception of the November market affected by Thanksgiving).
Technical analysis: Today’s price action suggests bears might have a slight short-term technical advantage in October live cattle trading, since bulls proved unable to force a close above initial resistance at the contract’s 20-day moving average near $179.00. That’s backed by psychological resistance at $180.00, along with today’s high at $180.175. A breakout above that point would have bulls targeting the 40-day moving average near $182.22. Initial support at today’s low of $177.925 is reinforced by the 10-day moving average near $177.50. A drop below that area would reopen the door to another test of the $175.00 level.
Bears may also hold the short-term technical edge in October feeder futures, since bulls also couldn’t force a close decisively above the contract’s 20-day moving average near $238.40. Look for initial support at today’s low of $236.70, with close backing from the 10-day moving average near $235.88 and the psychological $235.00 level. A close below the latter point would have bears again targeting $230.00. Initial resistance between today’s and Tuesday’s highs of $239.50 and $239.825 is reinforced by psychological resistance at $240.00. A bullish breakout would open the door to a retest of the 40-day moving average near $248.66.
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.