Hogs
Advice: We advise livestock producers to extend soymeal coverage another two weeks in the cash market through mid-August.
Price action: August lean hog futures settled a tick above limit down, plunging $3.725 to $84.675, leading the hog complex lower today.
Fundamental analysis: Lean hog futures underwent heavy selling pressure, marking fresh contract lows across several contracts as pessimism over the cash market persists. Earlier this week, August lean hog futures held a modest premium to the CME lean hog index. That quickly shifted to a steep discount to the index as futures have undergone heavy selling pressure. Continued weakness in the CME lean hog index, which is down 33 cents to $88.43 as of July 8, has cemented traders’ belief that seasonal weakness is likely to continue. Meanwhile, the preliminary calculation puts tomorrow’s index quote 24 cents higher to $88.67. Further strength in the index will be needed to dissuade traders from the current bearish narrative, as poor consumer demand amidst relatively high pork prices is unlikely to bring any late summer strength to the hog market given the current outlook.
Pork cutout firmed $1.44 to $95.19 at midsession, led by big gains in loins and bellies. Movement firmed to 174.03 loads. Grocers were likely increasing purchases due to the steep discount in pork prices from yesterday’s rout.
Technical analysis: August lean hog futures essentially fell the limit as bears continue to maintain full control of the near-term technical advantage. Prices gapped lower on the open which marked a technical breakdown from the recent bear flag technical pattern. Sellers took advantage and closed prices below the prior contract low ($86.225) and the psychological $85.00 mark, which will both stand as resistance now. Further selling finds support at $83.275 then the psychological $80.00 mark.
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: NEW ADVICE -- Extend soymeal coverage another two weeks in the cash market through mid-August. You should have all corn-for-feed needs covered in the cash market through July.
Cattle
Advice: We advise livestock producers to extend soymeal coverage another two weeks in the cash market through mid-August.
Price action: The cattle complex continued falling in response to huge Tuesday cash losses. August live cattle futures slid 10 cents to $182.25, whereas August feeder futures tumbled $1.375 to $254.35.
Fundamental analysis: The string of record highs in the fed cattle market is likely to end this week, especially in the wake of today’s report concerning Tuesday’s cash activity. A total of 7,174 steers traded at $188.36, which essentially marks a $9.00 drop from last week’s record high of $197.09 for the five-area average. The bulk of those traded was in the Southern Plains, with 3,893 head traded at $188.00 in the TX-OK-NM region, 2,016 traded at $187.69 in Kansas and 1,265 at $190.54 in Iowa and southern Minnesota. Even the Iowa breakdown would represent a plunge of about $7.00 from last week. Actually, having live cattle futures rebound significantly from today’s early lows was rather surprising given reports of huge cash losses. On the other hand, today’s decline still left the various contracts trading at sizeable discounts to this week’s early cash market quotes.
The wholesale market also offered little support for bulls since choice cutout dove $4.81 to $325.66 yesterday and slid another 41 cents to $325.25 at noon today. We tend to expect further cash and wholesale losses on a seasonal basis over the next few weeks, but we would be rather surprised if beef prices don’t rebound in August as grocers rev up their wholesale purchases for planned Labor Day features.
The feeder index is now quoted at $257.33 after having risen to $258.29 Monday. This marks a significant difference from the premiums maintained by the various summer/fall contracts to the cash index during spring. What is rather surprising about the feeder weakness is its occurrence at a time when the corn and soybean markets have proven quite weak. Such losses often encourage feedlot demand for replacement yearlings, which translates into feeder market strength.
Technical analysis: Bulls still own the short-term technical advantage in August live cattle futures, although the losses of the past three days have greatly diminished their edge. That is, bears proved unable to force a close below significant support at the contract’s 40-day moving average near $181.12 or the trendline drawn across the contract’s April and June lows, now near $181.00, or the psychologically important $180.00 level. A drop below that band of support would have bears targeting the $178.00 area. Today’s high marked initial resistance at $182.775. That’s backed by the June 14 high of $183.60, along with psychological resistance at $185.00.
Bears now hold the short-term technical advantage in August feeder futures, especially after the market closed well below former trendline support near $256.25. Initial resistance at that point is backed by the contract’s late-June and early-July lows around $256.40. Those are backed by the contract’s 40-day moving average near $258.58, then the psychological $260.00 level. Today’s low places initial support at $253.45. Expect added support between the contract’s June 7 low of $251.90 and the psychological $250.00 level.
What to do: Get current with feed advice. Carry all production risk in the cash market for now.
Hedgers: Get current with feed advice. Carry all production risk in the cash market for now.
Feed needs: NEW ADVICE -- Extend soymeal coverage another two weeks in the cash market through mid-August. You should have all corn-for-feed needs covered in the cash market through July.