Hogs
Price action: October lean hog futures sank 95 cents to $81.575 and closed nearer session lows.
Fundamental analysis: October lean hog futures underwent selling pressure despite an anticipated rebound in the CME lean hog index. The CME lean hog index is down another 32 cents to $86.15 as of Sept.2. Meanwhile, data from USDA points the index up 12 cents to $86.27 tomorrow. The recent surge in October futures has showcased trader belief that the index will rebound in September, but so far it is a “sell the news” event. Traders will keep a close watch on the cash market as a whole as relative strength returns to the index and wholesale pork remains quite volatile. After rebounding on Tuesday, pork cutout was down $1.54 to $97.28 at midsession, led lower by a $4.81 drop in bellies. Pork cutout has exhibited heightened volatility following the end of purchases for Labor Day specials a couple of weeks ago. If some strength returns to cutout, which is possible given grocers are likely to begin purchases for features during National Pork Month in October, it could support cash hog prices and help continue fueling an advance. Traders are likely to await confirmation on the latter point as discounts to the index are already tighter than the seasonal decline that historically occurs between now and the October contract’s expiration in about six weeks.
Technical analysis: October lean hog futures marked a fresh for-the-move high early in the session but ultimately closed lower on the day. Bulls continue to own the near-term technical advantage in lean hogs. Some additional profit-taking is possible given lean hogs are in the upper end of the recent range. Bulls’ initial objective is closing prices above today’s high of $83.375, with additional resistance stemming from $83.50, then the psychological $85.00 mark. Continued selling pressure finds support at $80.70, the 10-day moving average, the psychological $80.00 mark, then $79.675.
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: Ideas the recent decline in cash cattle prices may have run its course likely supported live cattle futures Wednesday. Nearby October futures traded higher through much of the session, but settled 5 cents lower at $179.225. The ongoing rebound in grain and soy futures undercut feeder futures, with most-active October diving $1.875 to $237.45.
Fundamental analysis: Cash cattle prices have declined for the past five weeks, with last week’s five-area average coming in at $183.81. However, we believe sustained demand strength from consumers, as well as early-month grocer buying for features planned for the first weekend in October, will spark a short-term cash market rebound. Such ideas got a boost from today’s USDA report concerning Tuesday’s cash market activity. No trade occurred Monday and yesterday’s action was quite limited. But the activity that did occur took the form of 80 head “officially” trading at $185.00, as opposed to last week’s Iowa-southern Minnesota average at $184.17. This doesn’t guarantee the weekly five-area average will also rise, but it’s a supportive precedent. Having wholesale prices start this week on the rise is likely encouraging bulls as well. Choice beef cutout rose $1.33 to $310.67 Tuesday, then added another 61 cents to $311.28 at midsession today.
In contrast, feeder futures suffered sizeable losses. That almost surely represented a reaction to sustained strength being exhibited by the grain and soy complexes this week. Those suggest a larger post-summer price recovery in ag prices is likely coming in the days and weeks just ahead. The implied increase in feed costs undercut the yearling market.
Technical analysis: The short-term technical balance in October live cattle futures seems rather balanced between bulls and bears at this point. The recent rebound from the steep short-term downtrend line and subsequent push above the contract’s 10- and 20-day moving averages, near $177.63 and $178.57, respectively, favor bullish interests. Support at those moving averages provide considerable backing for initial support at today’s low of $178.75. Conversely, initial resistance at today’s high of $179.925 is strongly reinforced by psychological resistance at $180.00. That’s also backed by recent highs (9/3 and 8/28) near $180.185 and $180.125. A breakout above that range would have bulls targeting the 40-day moving average near $181.53, then the Aug. 14 high of $182.40.
The technical situation in October feeder futures also seems balanced. Although it has stabilized lately, the contract still seems to be trending downward. Bulls have proven unable to overcome initial resistance around Tuesday’s high of $240.15, which essentially marks psychological resistance at the $240 level. A bullish surge would open the door to a test of the Aug. 14 high of $242.75, then the 40-day moving average at $245.79. Today’s low of $237.125 essentially coincided with the 20-day moving average near $237.20. That’s closely backed by the 10-day moving average of $236.63. A drop below that point would face psychological support near $235.00, but a close below that point would have bears targeting the August 21 low of $231.68.
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.