Walsh Trading Daily Insights
Commentary
October Lean Hogs opened lower, traded to the session low at 94.70 and grinded higher to the high at 96.625, settling nearby at 96.325. The strength in the nearby (August) contract aided the lead contract as it surged to new highs for its recent up move. The cash market is still expected by most analysts to reverse course from its current upward trajectory as October nears, due to normal seasonal factors. However, this is not normal times. I think inflation numbers will remain elevated, producer costs will still be prohibitive and production will continue to be lower than expected. Demand is strong and if China ever decides to normalize their subjects’ life and learn to live with the Wuhan virus, the people will be out in droves trying to get back all they have lost with the various shutdowns and demand for pork could surge. A big if, indeed… The fundamentals are very strong in my opinion, as the cutout market and the cash trade continue higher. If the Dollar continues its descent, we could see improvement in pork export sales and this could add to the strength in the cash. Price opened below support at 95.30 and was able to rebound and trade above it and approach resistance at 97.30. It is disappointing hogs couldn’t take out this resistance level. If price can’t take out resistance, we could re-visit support at 95.30. Support then comes in at 93.50.A break out above 97.30 could see a test of resistance at 98.475.
The Pork Cutout Index increased and is at 123.55 as of 7/21/2022.
The Lean Hog Index increased and is at 117.04 as of 7/20/2022.
Estimated Slaughter for Friday is 435,000, which is below last week’s 436,000 and above last year’s 430,000. Saturday’s slaughter is expected to be 41,000, which is above last week’s 22,000 and last year’s 31,000. The estimated total for the week (so far) is 2,285,000, which is above last week’s 2,255,000 and below last year’s 2,325,000.
August Feeder Cattle opened higher, made the session low at 178.325 and rallied the rest of the session to the high at 181.825. It settled nearby at 181.55. The rally took price past resistance at 180.80 and puts resistance at 182.70 and 184.375 in traders’ sights. The weakness in corn and traders hopes for bullish reports after the close in the Cattle on Feed and Cattle Inventory numbers set the stage for the rally, in my opinion. The reports were neutral to slightly bearish, in my opinion and we could see a pullback if corn rebounds. A failure from 180.80 could see futures test support at the rising 13-DMA now at 177.175. Support then comes in at 175.70.
The Feeder Cattle Index increased and is at 171.01 as of 7/21/2022.
Cold Storage
Total red meat supplies in freezers were down 1 percent from the previous month but up 24 percent from last year. Total pounds of beef in freezers were down 2 percent from the previous month but up 29 percent from last year. Frozen pork supplies were down 1 percent from the previous month but up 22 percent from last year. Stocks of pork bellies were down 6 percent from last month but up 46 percent from last year.
October Live Cattle opened at the low of the day and rallied all session to the high of the day at 143.20. It settled nearby at 143.00. Traders bought in front of the aforementioned reports due out after the close. The buying took price past resistance at 142.225. Settlement was strong, but will traders continue to push price higher after pouring over the reports this weekend. Packers continue to pressure cash prices and the cash average price continues to work lower, showing the success packers are having in controlling the market price. Don’t forget, they are pricing a lot of cattle under their “control” with a limited amount of “negotiated” cattle. If bulls continue to press, we could see resistance tested at 144.025. A failure from 142.225 could see price pull back towards support at 140.175. Support then comes in at 138.60.
Cattle on Feed
Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.3 million head on July 1, 2022. The inventory was slightly above July 1, 2021. The inventory included 6.90 million steers and steer calves, down 1 percent from the previous year. This group accounted for 61 percent of the total inventory. Heifers and heifer calves accounted for 4.45 million head, up 3 percent from 2021.
Placements in feedlots during June totaled 1.63 million head, 2 percent below 2021. Net placements were 1.56 million head. During June, placements of cattle and calves weighing less than 600 pounds were 360,000 head, 600-699 pounds were 270,000 head, 700-799 pounds were 370,000 head, 800-899 pounds were 369,000 head, 900-999 pounds were 175,000 head, and 1,000 pounds and greater were 85,000 head.
Marketings of fed cattle during June totaled 2.06 million head, 2 percent above 2021.
Boxed beef cutouts were mixed as choice cutouts fell 0.64 to 267.12 and select jumped 1.97 to 242.50. The choice/ select spread narrowed and is at 24.62 and the load count was 95.
Friday’s estimated slaughter is 119,000, which is below last week’s 120,000 and above last year’s 112,000. Saturday’s slaughter is expected to be 49,000, which is below last week’s 54,000 and last week’s 71,000. The estimated total for the week (so far) is 665,000, which is below last week’s 674,000 and above last year’s 655,000.
The USDA report LM_Ct131 states: So far for Friday in Kansas negotiated cash trading has been slow on light demand. A few live purchases traded steady at 136.00, when compared to the last reported market on Thursday. In the Western Cornbelt negotiated cash trading has been mostly inactive on light demand. Not enough purchases for a market trend. In the Western Cornbelt Thursday was the last reported market with live purchases from 142.00-144.00. Last week dressed traded from 228.00-230.00. In the Texas Panhandle and Nebraska negotiated cash trading has been at a standstill. Wednesday the last reported market in the Texas Panhandle with live at 136.00. Wednesday was the last reported market in Nebraska with live and dressed purchases from 139.00-143.50 and at 227.00, respectively.
The USDA is indicating cash trades for live cattle from 133.50 – 146.50 and from 224.00 – 232.00 on a dressed basis (so far).
Cattle Inventory
All cattle and calves in the United States on July 1, 2022 totaled 98.8 million head, 2 percent below the 101 million head on July 1, 2021.
All cows and heifers that have calved totaled 39.8 million head, 2 percent below the 40.6 million head on July 1, 2021. Beef cows, at 30.4 million head, down 2 percent from a year ago. Milk cows, at 9.45 million head, down 1 percent from previous year.
All heifers 500 pounds and over on July 1, 2022 totaled 15.6 million head, 2 percent below the 15.9 million head on July 1, 2021. Beef replacement heifers, at 4.15 million head, down 3 percent from a year ago. Milk replacement heifers, at 3.75 million head, down 1 percent from previous year. Other heifers, at 7.70 million head, 1 percent below a year earlier.
Steers 500 pounds and over on July 1, 2022 totaled 14.4 million head, down 1 percent from July 1, 2021.
Bulls 500 pounds and over on July 1, 2022 totaled 2.00 million head, unchanged from previous year.
Calves under 500 pounds on July 1, 2022 totaled 27.0 million head, down 3 percent from a year earlier.
Cattle and calves on feed for the slaughter market in the United States for all feedlots totaled 13.4 million head on July 1, 2022, unchanged from previous year. Cattle on feed in feedlots with capacity of 1,000 or more head accounted for 84.6 percent of the total cattle on feed on July 1, 2022, up slightly from previous year. The total of calves under 500 pounds and other heifers and steers over 500 pounds (outside of feedlots), at 35.7 million head, down 3 percent from the 36.7 million head on July 1, 2021.
The 2022 calf crop in the United States is expected to be 34.6 million head, down 1 percent from last year. Calves born during the first half of 2022 are estimated at 25.3 million head, down 1 percent from the first half of 2021. An additional 9.30 million calves are expected to be born during the second half of 2022.
For those interested I hold a weekly grain (with Sean Lusk) and livestock webinar on Thursdays (except holiday weeks) and our next webinar will be on Thursday, July 28, 2022 at 2:00 pm. It is free for anyone who wants to sign up and the link for sign up is below. If you cannot attend live a recording will be sent to your email upon completion of the webinar.
**Call me for a free consultation for a marketing plan regarding your livestock needs.**
Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
Direct: 312.957.4163
888.391.7894
Fax: 312.256.0109
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