Technically Speaking

Possible Support for August Lean Hogs?

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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The weekly chart above shows how excessive optimism about hog prices related to African swine fever in spring of 2019 has turned into excessive pessimism on coronavirus concerns. Last week, August hogs tried, but failed, to make a new low -- a possible sign of long-term support (DTN ProphetX chart).

Lean Hogs: August lean hogs lost $1.85 last week, settling at $52.80, near its lowest August prices in 17 years. There is no doubt coronavirus and meat plant closings have hit this market extremely hard as producers struggled to find takers for record flows of hog production, ramped up earlier by the demand hopes of African swine fever in China. Last week's hog slaughter was actually 5% above a year ago, but meat plants are not out of the woods yet as local infection spikes remain an ongoing problem. Technically, a bullish ray of hope was found in last week's trading as August hogs tested new lows Wednesday, but finished the week back above the April low of $51.90. If August hogs can hold present levels in this bearish atmosphere with prices near 17-year lows, we may be seeing the making of long-term support.

Live Cattle: August live cattle ended up $0.07 at $95.40 last week, staying in a narrow, corrective range since early May with no sign of changing the pattern yet. The 100-day average has served as consistent resistance throughout that time and is currently sitting at roughly $98.00. Slaughter levels and boxed beef prices are back near pre-coronavirus levels. Fundamentally, cattle prices are under bearish pressure with formula prices well above negotiated prices. Technically however, a close in August cattle above $98, if it happened, would give prices upward potential to $110.00.

Feeder Cattle: August feeder cattle gained $1.45 last week to finish at $132.55. Similar to live cattle, August feeders have been holding within a narrow, sideways range since early May, maintaining a firm tone in the futures market, while cash prices have pulled back lower. As mentioned above, the slaughter pace is back at workable levels for the market again, but now there are held-back supplies and heavy weights in the live cattle market that are likely to restrain demand for feeders. The bearish panic related to coronavirus has subsided, but it will still take time for the market to heal. A close above $134 in August feeders, if it happened would likely attract noncommercial buying up to $145 or possibly $150.00.

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 .

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