Beef prices lowest since May 20; hog volatility picks up
The technical action was positive yesterday for live cattle, but the market does not seem to have the bullish demand factors to spark a resumption of the uptrend just yet. It remains technically overbought; the USDA report Friday was clearly bearish showing short-term supply above the range of estimates; and beef prices have fallen to their lowest level since May 20. Without a quick turn higher in beef prices, speculative long liquidation selling is a threat.
October cattle closed slightly higher yesterday with an outside day up. The early selloff to the lowest level since August 16 failed to generate new selling interest. The market trading under 144.00, which was lower than the cash market, and buyers emerged to support. The five-area weighted average steer price last week was 146.88.
The USDA boxed beef cutout was down 44 cents at mid-session yesterday and closed $1.72 lower at $262.80. This was down from $265.44 the previous week and was the lowest the cutout had been since May 20. Cash live cattle trade was quiet on Tuesday with no trades reported. The USDA estimated cattle slaughter came in at 126,000 head yesterday. This brings the total for the week so far to 251,000 head, up from 247,000 last week and 237,000 a year ago.
The market remains in an overbought condition and vulnerable to a corrective break. Resistance for October cattle is at 145.10 and 145.37, with 143.07 and 142.15 as initial key support. December cattle resistance is at 151.12, with key support back at 148.80.
Big discount of futures to cash may keep sellers on the sidelines.
- READ MORE: How to properly evaluate sow condition
October hog volatility has picked up in the last week, as the seasonally bearish cash market news is clashing with the extremely wide cash basis. Yesterday's range was 440 points, and Monday's range was 175 points. The market fell 592 points off the August 15 peak in just five trading sessions. The CME Lean Hog Index was 119.98 on August 19, down from 120.29 the previous session and 121.71 a week prior. If October futures were trading at the five-year average basis, October futures would be trading at 110.80, not 93.17.
It is difficult to rationalize the wider than normal basis from a supply perspective. Third quarter pork production is expected to be down 1.1% from last year, and fourth quarter production is expected to be down 1.5%.
The USDA pork cutout, released after the close yesterday, came in at $104.06, down $12.49 from Monday and down from $119.61 the previous week. This was the lowest the cutout had been since June 28. The USDA estimated hog slaughter came in at 480,000 head yesterday. This brings the total for the week so far to 958,000 head, up from 918,000 last week and 912,000 a year ago.
Close in support for October hogs is at 92.75 and 92.47, with resistance at 95.62 and 96.77. Key support for December hogs is at 82.15.
About the Author: Terry Roggensack, a founding principal of The Hightower Report, analyzes the livestock, grain and soft markets. Roggensack has over 30 years of experience in the commodity and financial futures industry. In the late 1980s, he briefly lived in London as acting director of a new London clearing firm. Prior to that, Roggensack was director of research at Stotler & Company.
Editor’s Note: This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.