February Lean Hogs opened lower and rallied to the high of the day at 70.775. It reversed and broke down to the low of the day at 68.95. It once again turned around and rallied, approaching the high and settling near the high at 70.60. Hope is running high in the futures market that Hogs have made a low, giving futures a strong premium to the index. Traders expect the cash market to recover but the premium Feb has to the cash index could limit upside potential until the cash market catches up to the futures. Feb is running out of time and soon will be replaced by the April contract as the lead contract based on volume. Futures will then be tied (in my opinion) to the cash index and if cash stalls, we could see futures pullback. Cutouts are attempting to recover, creeping higher on strong load counts. This indicates to me that demand for pork is improving as it is extremely cheap compared to beef. The rally took price above resistance at 69.90 and the 50-DMA at 70.175. The intraday pullback took price down to test support at the 13 and 21-DMas, 69.15 and 69.125 respectively. This price action puts February in a good way but I am still wary of Hogs ability to build upon the futures premium to cash. If price can hold settlement, we could test resistance 71.325 – 71.85. If futures fail to hold settlement, we could see a breakdown to re-test support at 13 and 21-DMAs. Support then comes in at 68.75 and then the 8-DMA now at 68.35 and then 67.80.
The Pork Cutout Index increased and is at 84.21 as of 01/05/2024.
The Lean Hog Index ticked lower and is at 65.85 as of 01/04/2024.
Estimated Slaughter for Monday is 489,000, which is above last week’s (holiday) and even with last year. Saturday slaughter was revised lower to 430,000. The estimated total for the week (so far) is 2,371,000, which is above last week’s 2,221,000 and last year’s 2,346,000.
March Feeder Cattle opened higher and traded to the low of the day 224.25. It reversed and surged to the high of the day at 227.775. It reversed course yet again and approached the low of the day, settling near the low at 225.075. The rally stalled just below resistance at 228.05 and the low was just below support at 224.475. All of the intraday volatility did little to the chart as it formed an inside day candle and the price action ended where it started…. in the lower end of the consolidation band, it is trading in. Settlement stayed below the 50-DMA, now at 225.125. The downward slope of the 50-DMA is containing rallies, and we likely need some more flattening of the 50-DMA to be able to see it become supportive. Right now it is in my opinion, limiting the recovery. A rally past the Friday high (228.125) could see a test of resistance at 229.825. A failure below the low could see support tested at 222.225 and then the low of the rectangle. Support then comes in at 220.875.
The Feeder Cattle Index increased and is at 229.02 as of 01/05/2024.
February Live Cattle opened higher and surged to the high at 173.25. It couldn’t hold the rally and broke down, trading down the rest of the session to the low at 169.675. It settled near the low at 169.95. Monday’s opening surge stalled just above resistance at the declining 50-DMA now at 173.075 and the low challenged support at the rising 13-DMA now at 169.95. Settlement was right at the 13-DMA. The initial rally was likely because of the strength in the cash market last week and the bad weather most of the cattle country is facing. Crude Oil was beaten up on Monday and that could have pressured cattle as traders worry about margin calls. Packers are losing money as cutouts have been under pressure which could continue to slow slaughter rates and packer willingness to be aggressive in buying cattle. A breakdown below the low could see price test support at 168.625. Support then comes in at 166.975. If settlement holds, we could retest resistance at 172.75. Resistance then comes in at the declining 50-DMA.
Boxed beef cutouts were mixed as choice cutouts increased 1.67 to 278.83 and select decreased 0.17 to 259.36. The choice/ select spread widened and is at 19.47 and the load count was 131.
Monday’s estimated slaughter is 115,000, which is above last week’s (holiday) and below last year’s 127,000. Saturday’s slaughter was revised lower to 47,000. The estimated total for the week (so far) is 551,000, which is above last week’s 508,000 and below last year’s 565,000.
The USDA report LM_Ct131 states: Thus far for Monday in the Southern Plains and Nebraska negotiated cash trade has been at a standstill. Last week in the Southern Plains live FOB purchases traded at 172.00-173.00. Last week in Nebraska live FOB purchases traded from 173.00-175.00 and dressed delivered purchases at 274.00-275.50. In the Western Cornbelt negotiated cash trade has been mostly inactive on light demand. Last week live FOB purchases traded at 175.00 and dressed delivered purchases traded from 274.00-275.00.
The USDA is indicating cash trades for no live cattle and on a dressed basis (so far).
For those interested I hold a weekly livestock webinar on Tuesdays and my next webinar will be delayed to Tuesday, January 9, 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.
Direct: 312.957.4163
888.391.7894
Fax: 312.256.0109
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
tested support at the
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall not be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.