Hogs
Price action: December lean hog futures fell 7.5 cents to $74.90 and settled near mid-range. Nearby October futures climbed 35 cents to $82.475.
Fundamental analysis: Lean hog futures opened lower this morning but did not see much followthrough selling as the session went on. December futures traded on both sides of unchanged before settling near the open, modestly lower. The CME lean hog index is down 8 cents to $84.21 as of Sept. 23, a fresh seasonal low. The preliminary calculation puts the index down another 16 cents to $84.05 tomorrow, which would be the largest decline since seasonal weakness returned to the index late last week. Wholesale pork was modestly higher this morning rising 36 cents to $94.32. Cutout was supported by gains in picnics and butts, with movement totaling 175.71 loads as grocer demand remains quite robust. Seasonal weakness has stalled in pork cutout over the past week. Grocers have been slow to increase pork prices, which has been beneficial for demand. Some specials for National Pork Month in October are likely to further increase pork consumption. Consumer demand will need to lead a rebound in cash fundamentals in the coming weeks since slaughter rates will almost surely remain seasonally elevated through fall. Traders are cautiously optimistic on this front, as the spread between October futures and the cash index continues to narrow. That spread is down to $1.575 as of today’s close.
Technical analysis: December lean hog futures opened lower, though selling efforts were short lived as traders bought the dip. Bulls continue to hold full control of the near-term technical advantage. Initial resistance stems from the psychological $75.00 mark, which is reinforced by resistance at yesterday’s high of $75.80. A close above that mark opens the door for a test of $77.20 resistance. Today’s low of $74.40 marks initial support, with additional selling finding support at the 10-day moving average at $73.85, which coincides with the Sept. 3 close at $73.80. A break below that mark finds support at $72.75.
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: Cattle futures ended Wednesday narrowly mixed, with nearby October live cattle slipping 15 cents to $183.05 and most-active October feeder futures gaining 22.5 cents to $246.025. Expiring September feeder futures, which expire at noon tomorrow, rose 42.5 cents to $245.375.
Fundamental analysis: In the aftermath of the big gains posted since late last week, cattle traders seemed uncertain as to short-term market direction Wednesday. October live cattle futures ended the day modestly below last week’s cash average at $184.01, implying traders expect a slight cash market decline over the next five weeks. We are more optimistic on that score, thinking last week’s robust cash advance probably signaled more of the same into early-to-mid-October, when grocers will be actively buying beef for planned early-November features. Bears can point to recent wholesale weakness as favoring their cause but having Choice beef remain above $300.00 (at $301.01 at midsession today) seems to favor bulls. The fact that the Choice/Select spread has widened lately, to $15.78 at noon, also suggests the cyclical shortage of high-quality beef is again tightening, thereby favoring bulls as well.
The CME feeder index was stated at $244.02, up 52 cents, Tuesday afternoon. That’s a bit below today’s closing quote for expiring September futures, which implies traders expect continued strength into the end of the week (since the contract will ultimately cash settle against the Thursday quote for the index, to be published Friday afternoon). We think the feeder market is anticipating further fed cattle gains as well, along with downward pressure upon corn prices, as the Midwest harvest gets underway.
Technical analysis: Bulls clearly hold the short-term technical advantage in October live cattle futures at this juncture. Indeed, bears’ inability to sustain a drop below last Friday’s high of $182.65 (initial support) has late price action looking very much like a ‘bull flag’ pattern on the chart. A breakout above initial resistance at Tuesday’s high of $183.90 would have bulls quickly targeting the psychological $185.00 level, then the contract’s late-July high at $189.025 and the psychological $190.00 level. Conversely, a reversal that carried the market below initial support would open the door to a bearish retest of the $180.00 level and 40-day moving average support near $179.16.
Bulls also own the short-term technical advantage in October feeder futures. Today’s high places initial resistance at $246.50. Bears have little to hold their hat on below the psychological $250.00 level. Today’s low implied initial support at $245.025, which corresponds to psychological support at $245.00. Added support is layered from that point down to the contract’s 40-day moving average near $239.28.
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.