Technically Speaking

Corn Rally Keeping Feeders Under Pressure

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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August feeder cattle prices peaked in mid-April after an extended winter and rough calving season. Since then it's been all downhill, pressured by concerns that corn supplies will tighten in 2019 and the U.S. economy appears to be slowing. (DTN ProphetX chart)

August feeder cattle prices peaked in mid-April after an extended winter and rough calving season. Since then it's been all downhill, pressured by concerns that corn supplies will tighten in 2019 and the U.S. economy appears to be slowing. (DTN ProphetX chart)

Live Cattle: August live cattle gained $0.97 last week, ending at $104.27 per cwt -- a small correction higher in a trend that remains down. The 2019 cattle market is easy to understand thus far. Prices gradually climbed higher in early 2019, spurred on by noncommercial buying and a long winter season featuring blizzards, sub-freezing temperatures and high winds at calving season. Prices peaked in mid-April as harsh winter conditions eased and noncommercials quickly found themselves losing money on record net long positions that needed to be liquidated. More recently, rising corn prices and talk of slower economic growth here in the U.S. are adding to the bearish weight on prices, keeping the trend down for now. The 2018 low of $97.50 could provide possible support later this summer.

Feeder Cattle: Even though cattle prices were up a little last week, August feeder cattle fell $1.72 to $135.52 per cwt, back near its lowest prices in over two years. The most immediate bearish threat to feeders are rising corn prices as the July contract gained 37 1/4 cents last week, reaching a new contract high while planting remains difficult in the Corn Belt, especially on the eastern side. With corn prices on the rise, the trend in feeders remains down with a modest amount of commercial net longs providing the only source of support. Adding to bearish pressures is the fact that slaughter pace of cattle is slow in 2019, up only 1% from a year ago.

Lean Hogs: August lean hogs dropped $2.00 last week to $80.62, the lowest close in over three months. It was just a short three months ago that hog prices began to rise on hopes that China would be a big buyer of U.S. pork in 2019 due to the spread of African swine fever in Asia. China has purchased 254,000 metric tons (mt) of U.S. pork so far in 2019, far more than last year's 19,900 mt at this time, but it has not been the great bullish hope that many anticipated. Now, noncommercials are holding 54,410 net longs in a falling market where pork supplies appear to be plentiful -- a bearish recipe for more liquidation ahead. For now, the trend in hogs is down with no sign of support yet.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of livestock and livestock futures involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

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