Hogs and Cattle Rally

Ben DiCostanzoGeneral Commentary

December Lean Hogs opened lower, made the low of the day at 68.225 and rallied the rest of the session to the high at 70.625. It settled near the high at 70.475. The rally took price to its highest level since October 13th as traders put futures continued to narrow its discount to the Lean Hog Index. The cash market continues to struggle but the futures price was too cheap to the index and traders brought it closer in line to seasonal norms. Slaughter levels are still strong and the cutouts and cash prices have struggled accordingly. Saturday slaughter has been high and has been propping up the weekly totals as the Monday to Thursday levels have usually been below last year’s numbers. Demand has been good for pork but hog supply has kept slaughter levels up and packers are reaping the benefits. Holiday demand should be supportive in the near term as we have seen a shorter supply of hams and this could lead to aggressive retailer buying as they get ready for probable consumer demand. The rally took price past resistance at the 21-DMA now at 69.325 and the 69.90 resistance level. The next hurdle for bulls is the 71.325 – 71.85 resistance band. A pullback from settlement could see the 21-DMA challenged and then support at 68.80.

The Pork Cutout Index decreased and is at 87.23 as of 10/26/2023.

The Lean Hog Index decreased and is at 78.19 as of 10/25/2023.

Estimated Slaughter for Friday is 482,000, which is above last week’s 479,000 and below last year’s 485,000. Saturday slaughter is expected to be 191,000, which is below last week’s 207,000 and above last year’s 129,000. The estimated slaughter for the week (so far) is 2,614,000, which is above last week’s 2,610,000 and last year’s 2,564,000.

January Feeder Cattle made a new low at 233.35 early in the session then rallied to the high at 237.175. Trade stalled from here and it drifted the rest of the session and settled near the open at 235.70. It formed a Doji candlestick indicating indecision. Futures are now trading at a discount to the cash index instead of the heavy premium Feeders had on the rally to all-time highs. The cash market for feeder weight cattle has fallen and traders seem to believe that a recovery in this area is uncertain in the near term. Hence the discount. A failure to hold settlement could see price revisit support at 234.475. Support then comes in at 233.10, 229.825, 228.05, 227.80 before the rising 200-DMA at 227.50. If price can overtake resistance at 235.95, resistance will be tested at 237.25, 238.35 and then 240.875.

The Feeder Cattle Index decreased and is at 239.73 as of 10/27/2023.

December Live Cattle opened higher and made the low at 179.25. It reversed course and surged, trading to the session high at 183.275 by later morning. It drifted lower the rest of the session and settled at 182.225. The cash market firmed up on Friday helping to stabilize the December futures contract. Traders became comfortable buying cattle but couldn’t get into the gap formed from the Monday crash due to the bearish outlook created from the Friday Cattle on Feed report. The gap is from the Friday low at 184.425 to the Monday high at 183.65.  If futures can push through the gap, a test of resistance at 185.75 is possible. Resistance then comes in at 187.725. A break out above the gap could be explosive because there is strong resistance at 184.35, the 50-DMA 184.675 and the declining 21-DMA is at 184.775. It will take a lot of energy to penetrate this area, so, if it does look out. A failure from here could see price test support at 181.175 and the nearby rising 100-DMA at 181.00. Support then comes in at 179.40.

Boxed beef cutouts were higher as choice cutouts increased 0.72 to 307.57 and select increased 0.43 to 280.12. The choice/ select spread widened and is at 27.45 and the load count was 134.

Friday’s estimated slaughter is 118,000, which is even with last week and below last year’s 123,000. Saturday slaughter is expected to be 16,000, which is below last week’s 18,000 and last year’s 31,000. The estimated total for the week (so far) is 636,000, which is below last week’s 638,000 and last year’s 667,000.

The USDA report LM_Ct131 states: Thus far for Friday in the Southern Plains negotiated cash trade has been moderate on trade and demand. Compared to last week in the Texas Panhandle live FOB purchases traded mostly steady mostly at 185.00. Compared to last week in Kansas live FOB purchases traded steady to 1.00 higher mostly at 185.00, with a few up to 186.00. In Nebraska and the Western Cornbelt negotiated cash trade has been slow on moderate demand. There were a few live FOB purchases at 186.00 in Nebraska, however not enough purchases for a market trend. The most recent market in Nebraska was Thursday with live FOB purchases from 183.00-185.00. There has been a few dressed delivered in Nebraska purchases from 290.00-292.00, however not enough for a market test. The most recent dressed delivered in Nebraska and the Western Cornbelt market was Wednesday with purchases at 290.00. The most recent live FOB market in the Western Plains was Thursday purchases traded from 183.00-185.00, mostly at 184.00.

The USDA is indicating cash trades for live cattle from 180.00 – 186.00 and from 287.00 – 292.00 on a dressed basis (so far).

For those interested I hold a weekly livestock webinar on Tuesdays and my next webinar will be on Tuesday, October 31, 2023, at 3:00 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.

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Ben DiCostanzo

Senior Market Strategist

Walsh Trading, Inc.

Direct: 312.957.4163


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