Hogs
Price action: October lean hog futures climbed $1.15 to $75.925 and settled near session highs. Nearby August futures rose $1.075 to $92.275.
Fundamental analysis: Lean hog futures saw resurgent buying interest though they remain well below this week’s highs as prices continue to be supported by strength in cash fundamentals. The CME lean hog index is up another 30 cents to $92.59 as of July 29, marking a fresh seasonal high, although later than usual. The preliminary calculation points to further late-season strength, pointing the index up another 49 cents to $93.08 when officially published tomorrow. August futures continue to trade below the index as traders anticipate a peak in the cash market sooner than later. In the same way that futures rebounded prior to the bounce in the cash market as insiders likely knew to anticipate resurgent strength in the lean hog index, traders are now anticipating a top. Whether the market proves stronger than they expect still remains to be seen. Wholesale pork prices continue to see weakness following Monday’s peak, as pork cutout fell 66 cents at midsession to $104.94. A $7.22 drop in hams accounted for most of the weakness in cutout, offsetting strength in butts and loins.
Technical analysis: October lean hog futures posted modest gains though they remain near the bottom of this week’s range. Bulls are seeking to build on today’s strength to keep the uptrend from the July low intact. Initial resistance stems from the 40-day moving average at $76.15 with further strength seeking to overcome last Friday’s close at $78.20. Bulls are seeking to maintain support at $75.50 on continued selling pressure, which is firmly backed by yesterday’s close at $74.775.
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 slipped Wednesday, likely in anticipation of flat-to-weak cash prices later in the week. Nearby August futures slid 57.5 cents to $187.125. Falling grain and soy prices encouraged feeder buyers; the nearby August contract rebounded 27.5 cents to $257.25.
Fundamental analysis: The cattle and beef sector continues to perform well, as indicated by last week’s cash market rebound to $195.21 and the choice beef market’s late rebound toward $315.00. What makes this strength so impressive is the cattle and beef markets’ strong history of suffering from summer doldrums, where seasonally large slaughter totals meet weak consumer demand amidst the heat of summer. The cyclically reduced supply of cattle outside feedlots is providing the backdrop for tight feedlot supplies, whereas grocers are apparently content to feature beef as “loss leaders.” Thus, despite the weak historical tendency, the cattle and beef complex is seemingly going to continue acting well. On the other hand, if/when grocers decide to significantly increase the retail cost of beef to consumers, the market could prove surprisingly weak.
The cyclical tightness of yearling supplies is likely to get worse during the weeks ahead. Not only is the national herd expected to remain extremely low next year, initial moves to rebuild herds will require producers to hold back high-priced heifers as breeding cows. Ongoing declines in grain prices and feed costs are encouraging even stronger demand for those yearlings. A corn reversal might cause a decline in feeders as well, but that’s not guaranteed given the tightness of yearling supplies.
Technical analysis: Bulls retain their short-term technical advantage in August live cattle futures. The market has clearly set back from last week’s high, but bears have proven unable to overcome stout support at the July 23 high of $186.60 and the 10-day moving average near $186.175. Expect strong psychological support around $185.00, especially with the cash market topping $195.00 last week. Today’s high marked initial resistance at $187.50, with a breakout above that point likely reopening the door to last week’s high at $189.275, then the psychological $190.00 level.
August feeder cattle futures continue trading mostly sideways, with bears seemingly enjoying a slight technical advantage. Bulls again proved unable to sustain a move above its 10-, 20-, and 40-day moving averages near $257.29, $257.89 and $$258.18, respectively. A push above the latter would have bulls targeting the psychological $260,00 level and the July 26 high of $260.75. Initial support at today’s low of $255.80 is closely backed by recent lows around $255.50, then the psychological $255.00 level.
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.