July lean hogs gained $7.80 in the week ended Friday, May 20, a quick recovery that helped prices end at $109.00 per hundredweight Friday, well above the previous week's low of $97.375. Friday's CFTC report provided insight, showing how noncommercial net longs fell from 66,438 on Feb. 22 to 7,765 as of Tuesday, May 17 -- the smallest net-long position in nearly two years. On Friday afternoon, USDA's Daily Direct Hog Report showed the negotiated average for national hogs at $112.97 versus a Swine Marker Formula price of $100.08. The higher negotiated prices show a willingness among packers to pay up for physical hogs, which are likely still in short supply. Technically, July hogs posted a strong reversal last week, but remains below and may still have some resistance at $111.20, the site of its 100-day average. Given this week's more bullish fundamental clues, it will be interesting to see if July hogs can close above that resistance this week.
August live cattle ended down 80 cents last week at $131.55, a new six-month low as cash prices took it on the chin again, followed by a bearish Cattle on Feed report Friday afternoon. Cash trades were reported $2 to $4 lower for the week as producers remain under pressure to trim herds, hurting from drought, high feed costs and lower cash prices. Friday's USDA report said 11.97 million head of cattle were on feed as of May 1, a little more than expected with placements only down 1%. August cattle officially broke below the support of a six-month low on May 13 and finished a little lower Friday, but it is difficult to say if there is much more downside potential as the August futures contract is already $4 to $5 lower than cash. Technically, the trend remains down with 35,030 noncommercial net longs losing money and under pressure to liquidate.
August feeder cattle fell $4.10 to a new contract low of $163.92 during the week ended Friday, May 20, trading lower the past three months and showing no sign of changing trend yet. With drought in the western Plains, corn going for $8.74 a bushel in the Texas Panhandle, hay in short supply in many areas and investor fears of a recession ahead, it is difficult to find a good argument for buying feeder cattle anytime soon. Technically, August feeder cattle fell to a new two-month low in early March and has been chopping lower since, on the way to Friday's new low. The trend remains down, but there is one bullish possibility to watch. Friday CFTC data showed noncommercials net short 5,669 contracts, potential victims for a short-covering rally.
Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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