Cattle and Hog Futures: Bullish Fundamentals vs. Technical Overhang – Is the Pullback a Buying Opportunity?

The recent selloff in cattle and hog futures has sparked debate among traders: Is the correction a buying opportunity fueled by robust fundamentals, or a warning of deeper retracement ahead? This article dissects the technical overbought conditions versus bullish supply-demand dynamics, weighing risks like trade tensions and fund liquidation against tight supplies and boxed beef's historic highs.

Technical Overhang: Overbought Markets, But Bulls Still in Charge
Hog futures (HEZ2025) have been caught in a classic overbought trap after surging to 102.225 in early June, breaking above key Fibonacci resistance (0.786 and 0.886 levels). The pullback to 101.975 in late June reflects profit-taking, with charts showing a 65% probability of a bullish continuation but critical support at 99.925. A breach below this level could trigger a 10% bearish reversal, but for now, the trend remains intact.

Cattle futures (CME:LEZ2025) face similar dynamics, with August contracts hovering near $210.65 after a two-week dip. Technical support at the 40-day moving average ($209.87) holds, while resistance remains at the 20-day MA ($212.71). A breakdown below $200.51 (the 100-day MA) would signal a bearish shift, but bulls still control the narrative.

Fundamental Strength: Boxed Beef at Five-Year Peaks and Tight Supplies
The bullish case rests on three pillars:
1. Boxed Beef's Historic Highs: The CME Choice beef cutout index hit $385.18 in June, a five-year peak, reflecting packer demand for lean protein amid summer grilling season.
2. Tight Hog Supply: Sow liquidation in 2023/2024 has reduced 2025 inventories, with USDA data projecting 28.5 billion pounds of pork—up 2.7% from 2024—but far below pre-pandemic levels.
3. Packer Power: Processors like Tyson Foods are aggressively bidding for hogs, as reduced herd sizes limit availability.

The Overlooked Catalyst: Lower Feed Costs and Export Diversification
Fundamentals are further bolstered by a 13% drop in feed costs (corn/soybean meal) and export gains. Mexico and South Korea are absorbing 3% more U.S. pork in 2025, offsetting China's 125% tariffs. Meanwhile, cattle feedlots benefit from cheaper corn, easing margins for ranchers.

Risks: Trade Wars and Fund Liquidation
Despite the bullish backdrop, two risks loom large:
1. Trade Tariffs: China's punitive tariffs on U.S. pork could limit export upside, forcing producers to rely on domestic markets.
2. Speculative Overhang: Managed money holds a record net long position of 97,952 contracts in hogs (per COT data), raising the risk of liquidation-driven volatility.

Near-Term Outlook: Cash Markets and USDA Reports Will Decide
The next two weeks are critical. Cash hog prices, which hit $114.07 on June 18 (up $4.83 from prior lows), must hold above $110 to sustain futures. For cattle, the USDA's June 30 Cattle on Feed report will test whether herd rebuilding is underway. A surprise decline in placements or higher slaughter rates could catalyze a bearish trend.

Investment Recommendation: Buy the Dip, but Stay Cautious
- Hog Futures (HEZ2025): Aggressive buyers should dip into the 99.925–100.25 zone, with a stop below 99.600. A close above 102.225 validates the bullish case.
- Cattle Futures (LEZ2025): Accumulate below $209.87 only if cash cattle prices hold above $210. Consider a collar strategy (long futures + put options) to mitigate downside.
- Risk Management: Hedge exposure if boxed beef slips below $380 or hog slaughter rates spike post-USDA reports.

Final Take
The technical correction is healthy, not terminal. Fundamentals—tight supplies, boxed beef highs, and lower feed costs—support a bullish bias. However, traders must balance greed with fear: a USDA report miss or a China trade deal could shift momentum. For now, the pullback is a buying opportunity for the brave, but keep stops tight.

Trade with conviction, but respect the charts.