October Lean Hogs gap opened higher on Friday and raced to the high of the day on hopes for a revival in the cash market. It reached the session high at 83.125, and the market stalled. The high was just below resistance at 83.325 and it seemed that traders wanted more information before challenging the resistance level. Well…they got their information all right and it wasn’t good. The morning cutout report came out and the cutouts cratered. It dropped 10.55 to 94.37 for the carcass value and was led by a crash in the Belly. It collapsed, down 53.78 to 127.66! A disappointing shocker to say the least. Hogs followed suit, collapsing to the low at 79.125. It stabilized here and settled at 79.825. The takedown of Hogs closed the opening gap and took price below support at 79.80. Settlement, however, was a tick above it, giving some hope to bulls. Maybe… the cutouts would rebound at the afternoon report, after all when Bellies surge in the morning, most times they give it back and then some…. Unfortunately for bulls, that didn’t happen. The Belly fell some more… down 58.48 to 122.96 and the carcass value ended the day down 11.50 to 93.42.The Cash index is also falling rapidly and is expected to be lower on Monday. Not a pretty picture for Hogs. Export Sales were the bright spot this week. It came in at 33,000 Mt, up 15% from the previous week and 40% above the 4-week average. With exports looking good, it must be domestic demand that is weak, and I am hearing stories that grocers are keeping prices at higher levels, probably to make up margin lost from beef if true…. Whatever the reason, domestic demand has slowed at the same time slaughter and weights are rising. Not a good picture for the industry. Stay tuned… A failure below the low could lead to a test of the 78.80 support level. Support then comes in at 77.80. If Hogs hold settlement, it could test resistance at 80.45. Resistance then comes in at 81.70.
The Pork Cutout Index decreased and is at 104.10 as of 8/24/2023.
The Lean Hog Index decreased and is at 96.40as of 8/23/2023.
Estimated Slaughter for Friday is 468,000, which is below last week’s 469,000 and above last year’s 447,000. Saturday’s slaughter is expected to be 156,000, which is above last week’s 61,0000 and last year’s 39,000. The estimated slaughter for the week (so far) is 2,500,000, which is above last week’s 2,414,000 and last year’s 2,412,000.
October Feeder Cattle rallied to the upper end of its recent trading range. The range is from the all-time high for the lead contact at 254.30 to the low at 245.875. The Friday high came in at 254.15 and the low was 252.80. Settlement was near the high at 253.975. The Settlement price was the all-time high for the lead contract. The Feeder Index is strong and looks like it is going to take out the 8/4/2023 high at 245.84. With futures at all-time highs, the spread differential between future and the index is tight when compared to earlier in the year when futures prices regularly traded 16 or more handles above the index. I think traders are tiptoeing their way through the tulips because of the all-time highs. They are aware of the adage that high prices cure high prices and even though they may think higher prices are coming, at what price point will it be the straw that breaks the camels back. The cash will have to lead the way, in my opinion, and so far, it shows no sign of pulling back in any way of significance. Of course…. We’ll see…. A failure from settlement could see a test of support at 252.325. A new high could see price move towards resistance at the October contract high (when it wasn’t the lead contract) at 256.25.
The Feeder Cattle Index increased and is at 245.59 as of 8/24/2023.
October Live Cattle opened lower, broke down to the low of the day at 179.95, and rallied to the high of the day by late morning. It made the high at 181.375 and settled at the key level at 181.175. The cash market is dragging its feet and basically trading in a range and has led to a drifting lower futures market that recently tested the downside with its recent low at 177.625. With cash not breaking down as traders were starting to believe, in my opinion, Futures have recovered and is in the middle of its trading range. The all-time high at 185.75 is the high for the range. The recent low is the low. Even though the market has a short-term downtrend brewing, holding above the recent low this week has stabilized the futures market. This is a critical area in my opinion. A failure from here strengthens the fledging downtrend. If Futures can trade above the August 4th high at 183.725, it could stall the downtrend. But don’t forget, we are near the all-time high which was established when October took over as the lead contract, so, we could stay in a trading range until something happens in the cash market….either up or down. It is tough for traders to hold onto positions for there is always the fear that packers will regain control of cash. That demand will falter for beef as prices are high and exports are weakening. But with tight supplies of fed cattle, packers are slowing slaughter, yet that hasn’t led to a supply glut and hasn’t forced producers to panic. This has kept bears in check. Packers, however, aren’t giving up on that goal…. We’ll see!…. Settlement was above short-term moving average key levels with the 8-DMA (179.50), 13-DMA (180.175) and 21-DMA(180.50) all below the price again. They could provide support on a pullback on Monday. If settlement holds, we could test resistance at 182.575.
Boxed beef cutouts were higher as choice cutouts increased 0.27 to 317.90 and select increased 0.76 to 292.67. The choice/ select spread narrowed and is at 25.23 and the load count was 79.
Friday’s estimated slaughter is 122,000, which is above last week’s 118,000 and below last year’s 123,000. Saturday slaughter is expected to be 16,000, which is above last week’s 9,000 and below last year’s 57,000. The estimated total for the week (so far) is 626,000, which is above last week’s 616,000 and below last week’s 678,000.
The USDA report LM_Ct131 states: So far for Friday in the Texas Panhandle negotiated cash trade has been moderate on moderate demand. Compared to last week live FOB purchases traded steady from 178.00-179.00. In Kansas negotiated cash trade has been slow on light to moderate demand. Compared to last week live FOB purchases traded steady at 179.00. In Nebraska negotiated cash trade has been limited on light demand. However, not enough live or dressed purchases for a full market trend. The last reported market was on Thursday live FOB purchases at 185.00 and dressed Delivered from 292.00-295.00. In Iowa negotiated cash trade has been slow on light demand. However, not enough live or dressed purchases for a full market trend. The last reported market was on Thursday live FOB purchases at 185.00. Last week dressed delivered purchases traded from 290.00-295.00.
The USDA is indicating cash trades for live cattle from 178.00 – 188.00 and from 287.00 – 295.00 on a dressed basis (so far).
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, August 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.
**Call me for a free consultation for a marketing plan regarding your livestock needs.**
Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
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