Walsh Trading Daily Insights
Commentary
October Lean Hogs opened higher, at the low of the day (79.825) and took off to the races. The open was above resistance at 79.80 and bulls took this as a sign the bullish Morning Star candlestick pattern established over the past 3-day period was ready to go. It took out resistance at 80.45 and ticked past resistance of the 50% retracement level of the 86.75 high from August 1st to the August 16th low at 77.75 to the high at 82.35. It dipped and settled near the high at 82.125. Just above the 50 % retracement s the 21-DMA at 82.60 and the 200-WMA at 82.70. This is formidable resistance in my opinion and could hold Hogs back in the near term. Ther is also the problem of a weakening cash market as cutouts and cash hogs have been in decline over the past week. Slaughter numbers are anticipated to rise and if they do in a significant manner, it could put pressure on futures again. The hope for bulls is high beef prices and retail shifting its features to pork for the Labor Day holiday. This could improve demand and limit the downside for futures. We’ll see…. If Hogs overtake resistance at the 21-DMA and the 200-WMA, a test of resistance at the 61.8% retracement level at 83.30 and the 83.325 key level is possible. Resistance then comes in at 85.325. A failure at settlement could see a test of the 81.70 support level and the 38.2% retracement level at 81.20. Support then comes in at 80.45.
The Pork Cutout Index decreased and is at 108.61 as of 8/17/2023.
The Lean Hog Index decreased and is at 100.32 as of 8/16/2023.
Estimated Slaughter for Friday is 469,000, which is above last week’s 456,000 and last year’s 466,000. Saturday slaughter is expected to be 61,000, which is below last week’s 74,000 and even with last year. The estimated total for the week (so far) is 2,414,000, which is above last week’s 2,354,000 and last year’s 2,407,000.
September Feeder Cattle opened lower and traded down to a new low for the down move at 245.875. The low tested support at 245.75 and it held, taking price higher the rest of the session, making the high at 248.825 at the end of the day. The high is just below resistance at 248.85 and settlement was at 248.525. The breakdown stalled as futures are getting close to the Feeder Cattle Index and recent narrowing of the futures / Index premium has seen a reversal in the futures to create some space. There was also short covering as we were going into the weekend with the Cattle on Feed Report due out after the bell. (In my opinion.) If futures can take out the 248.85 resistance level, it could test resistance at the 8-DMA at 249.775 and the 13-DMA at 250.275. Resistance then comes in at 251.30. A failure at settlement could see price re-test support at 245.75.
The Feeder Cattle Index decreased and is at 244.04 as of 8/17/2023.
October Live Cattle broke down to a new low for the down move at 177.625, putting pressure on bulls to keep the major uptrend intact. Cattle has begun a short-term down trend as packers have succeeded so far in changing futures traders’ minds on the direction of the cattle market, in my opinion. They are continuing their efforts to change producers’ minds, but have a way to go, in my opinion. They have slowed the slaughter and are attempting to back up feedlots in the long run as so far, the cash market has held on and stayed in the upper end of its trade. They were able to knock cash prices down a notch this week as upcoming excessive heat worries (Mid-West) have caused producers to be more anxious to sell their cattle in front of the heat. Weights haven’t surged so it doesn’t appear packers have been too successful in their goal, but they play the long game and know it is the only avenue they have right now to regain control of the market. Cutouts have jumped as the slowdown in slaughter has fueled retailers’ fears as they buy for the Labor Day holiday, so 2-thirds of their dominance equation is playing out, in my opinion. The Cattle on Feed report may have helped producers as it is bullish in my opinion. (See below). The numbers are below expectations and continue to show tightness in the market. The futures decline stalled just above support at the rising 50-DMA, now at 177.45, so in my opinion this is a key level to watch. The recovery took price up to 179.30 and settlement was at 178.825. The rally stalled just below resistance at 179.40 as traders couldn’t keep the rally going in front of the report. Bulls now face headwinds as there is declining moving average resistance at the 8-DMA (180.35), the 21-DMA (180.575) and the 13-DMA (180.775) just above the high. Resistance then comes in at 181.175. Will the COF report be enough to get cattle rising again? Futures have to take out the August 4th high at 183.725 to negate the fledging down trend. A lower high and a lower low will strengthen the down trend, in my opinion. A failure below settlement could see price revisit the low and the rising 50-DMA. Support then comes in at 175.95.
Boxed beef cutouts were higher as choice cutouts increased 1.97 to 316.11 and select increased 2.10 to 288.36. The choice/ select spread narrowed and is at 27.75 and the load count was 92.
Friday’s estimated slaughter is 118,000, which is above last week’s 109,000 and below last year’s 123,000. Saturday slaughter is expected to be 9,000, which is above last week’s 3,000 and below last year’s 40,000. The estimated total for the week (so far) is 616,000, which is above last week’s 603,000 and below last year’s 664,000.
The USDA report LM_Ct131 states: So far for Friday in the Southern Plains negotiated cash trade has been slow on light demand, with a few live FOB purchases in the Texas Panhandle at 178.00. However not enough purchases for a market test. The latest established market in the Southern Plains was Thursday with live FOB purchases from 177.00-179.00. In Nebraska and the Western Cornbelt negotiated cash trade has been at a slow on light demand. The latest established market in Nebraska was on Thursday with live cash FOB purchases traded from 185.00-187.50, with a light test of dressed purchases from 294.00-297.00. The latest established market in the Western Cornbelt was on Thursday live cash FOB purchases traded mostly at 186.00, with a light test of dressed purchases from 294.00-297.00.
The USDA is indicating cash trades for live cattle from 177.00 – 189.00 and from 284.00 – 298.00 on a dressed basis (so far).
United States 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 11.0 million head on August 1, 2023. The inventory was 2 percent below August 1, 2022.
Placements in feedlots during July totaled 1.62 million head, 8 percent below 2022. Net placements were 1.55 million head. During July, placements of cattle and calves weighing less than 600 pounds were 365,000 head, 600-699 pounds were 250,000 head, 700-799 pounds were 370,000 head, 800-899 pounds were 373,000 head, 900-999 pounds were 185,000 head, and 1,000 pounds and greater were 75,000 head.
Marketings of fed cattle during July totaled 1.73 million head, 5 percent below 2022. Other disappearance totaled 65,000 head during July, 16 percent above 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, August 24, 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.