Hogs
Price action: October lean hog futures plunged $1.825 to $74.575 and settled near session lows. Nearby August futures sank 67 1/2 cents to $90.60.
Fundamental analysis: Lean hog futures continue to fall under selling pressure as the late seasonal strength in the CME lean hog index has waned. Traders remain pessimistic about the outlook of lean hog futures, as evidenced by the discounts seen in deferred futures through the winter months. We remain cautiously optimistic on that front, as packers and retailers have seemingly begun to shift to feature more pork. This will be key in maintaining demand as pork production picks up in the next couple of months. Consumers have accelerated their bacon purchases for BLT season, as implied by the belly market strength over the last month; that has helped lead pork cutout as a whole higher. Cutout faced sharp losses yesterday but rebounded modestly this morning, rising 33 cents to $102.64 at midsession. Movement that last couple of days has been quite strong, totaling 385.19 loads yesterday and 158.83 loads at midsession today. Packer margins remain quite robust, as reported by Hedgersedge, which will continue to incentivize packers in boosting production of pork.
Technical analysis: October lean hog futures faced sustained selling pressure throughout Wednesday’s session, rendering the near-term technical advantage to the bears. Stiff resistance stands at $75.75 with additional resistance at $76.10, the 40-day moving average. A close above that mark would have bulls targeting yesterday’s high of $77.50. Support comes in at Monday’s low of $73.90 than the June low at $73.175. A close below the latter mark opens the door to $70.00 support.
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: Anticipation of cash market weakness likely capped rally attempts in live cattle futures Wednesday, with the nearby August contract working up 30 cents to $182.275 and most-active October rising 22.5 cents to $179.275. The expiring August feeder cattle contract slipped 37.5 cents to $242.625, whereas September feeders fell $1.675 to $238.90.
Fundamental analysis: This week’s early cash trade indicates the weekly average is likely to decline from last week’s relatively elevated level of $194.45. A few steers (116 head) changed hands in the TX-OK-NM area at $185.00 Monday, with many more (2,668 head) trading at $193.00 in IA-so. MN yesterday. Given the large futures losses suffered over the past week, this isn’t terribly surprising. On the other hand, Choice cutout slipped just $1.68 to $314.13 at noon, while Select cutout dipped 15 cents to $299.47. Ultimately, these cash and wholesale quotes remain extremely high by historical standards, with the latter offering encouragement for packers to continue operating rather aggressively (although industry reports indicate they’re operating in the red at the moment). By the same token, they have not risen to the point that will encourage grocers to abandon their habit of actively featuring beef at levels little changed from those of the past weeks and months.
We don’t doubt some seasonal cash pressure will occur during the coming weeks, but we would also point out that the large discounts built into deferred fed cattle futures will encourage producers to keep moving cattle as quickly as possible, thereby continuing to limit market-ready supplies, as well as curtail feedlot placements. Cheap feed is encouraging them to feed more, but having the feeder index over $255.00, means they’re having to pay up for replacement yearlings. Thus, we’re inclined to think deferred live cattle and feeder cattle futures are somewhat undervalued.
Technical analysis: Bears own the short-term technical advantage in October live cattle futures. Indeed, one can easily argue that the price action of the past week has created a big “bear flag” formation, with last week’s late action forming the “pole” and this week’s early action forming the “flag”. A resumption of last week’s drop would carry October futures sharply lower. Psychological resistance still stands at the $180.00 level, while today’s high marks added resistance at $180.575. A move above the latter point would have bulls targeting the confluence of the contract’s 10-, 20- and 40-day moving averages near $184.25. The lows posted over the past three sessions put support near $178.275, $177.525 and $176.20. Expect psychological support at $175.00, with a penetration of that point opening the door to a potential test of $170.00.
As in live cattle, recent price action in September feeder futures resembles a ‘bear flag’ formation, with the potential for a big follow-through drop. The ‘flag’ implies stout resistance at Monday’s high of $246.625 and support at $240.775. A sizeable rebound that carries the market above the ‘flag” would have bulls targeting the 10-day moving average near $252.15, whereas a drop to fresh lows would have bears targeting $240.00, then the contract’s April low of $235.90.
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.