February Lean Hogs continued its recovery since breaking down on Monday to a low for contract at 65.80. This low was just above the low for the continuous contract at 65.40 settling up a short-covering rally that has closed the gap created form the breakdown on November 24th from the November 23rd low. The gap is from 71.40 to 71.575 and Thursday’s high was at 71.625. It settled at 71.475 and the low was at 69.75. I think the rally came about as Feb futures have been trading at a discount to the Lean Hog Index where as it normally trades at a premium. At the recent low futures were trading at around 6.5 handles discount to the index. It usually trades at a 5 – 6 handle premium to the index, in my opinion. So, the futures were overdone to the downside, we recovered and closed the gap. It is in between the 71.325 – 71.80 resistance zone and settled above the 21-DMA at 71.225. The index has continued lower and the cutouts are struggling. When a gap is closed the odds are in favor of a reversal in the direction of the gap, which was down. So, watch how the market opens on Friday. If futures can’t hold settlement, we could see a breakdown to re-test support at the 38.2% retracement level at 70.475. This is a retracement from the 78.70 high to the 65.40 low. A continuation lower could see support tested at 69.90. If futures break out above the Thursday high, we could see the 71.85 resistance level tested. Resistance then comes in at the 50% retracement level at 72.05. Aggressive buying could then take futures to resistance at 72.80.
The Pork Cutout Index decreased and is at 85.28 as of 11/29/2023.
The Lean Hog Index decreased and is at 71.53 as of 11/28/2023.
Estimated Slaughter for Thursday is 486,000, which is above last week’s holiday shortened 2,000 and below last year’s 490,000. The estimated total for the week (so far) is 1,930,000, which is above last week’s 1,424,000 and below last year’s 1,956,000.
For those interested I hold a weekly livestock webinar on Tuesdays and my next webinar will be on Tuesday, December 05, 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.
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