The February Lean Hogs contract gap opened lower, closed the gap as it made its high at 70.90 then fell apart at the seams. It went down limit and settled down limit at 68.55. Settlement was below the 68.75 support level. This collapse erased the gains that started with the rally on December 13, 2019 when it broke out above the prior consolidation. It is back in the 70.05 – 65.40 consolidation range with the settlement at the low. If settlement holds on Monday, consolidation within Friday range is likely. A failure from settlement could see price test support at 67.80 and then the rising 50 DMA at 67.60. The 100 DMA is next at 67.01. The lowest exports of the year (2019) seems to be the main culprit for the decline, in my opinion. The Lean Hog index declined and is at 57.73 as of 12/31/2019. The Pork Cutout Index declined and is at 74.59 as of 01/02/2019.
The February Live Cattle opened at settlement and broke down to the low of the day at 124.575. This is above the 124.30 support level and yesterday’s 124.55 low. It held fast and rallied into the mid-morning to the session high at 125.95. This is below Thursday’s high and just above the 125.80 key level. It failed from here and fell back, settling at 124.725. It formed an inside candlestick and is locked in between the 124.30 and 125.80 support and resistance levels once again. Next week is a full trading week and traders should be back and ready to trade for the new year. This could create some volatility as traders try to find the path of least resistance. If settlement holds a re-test of resistance at 125.80 is possible. A rally above 125.80 could see price revisit the 126.625 resistance level. Resistance then comes in at 128.10. A failure from settlement could see price test support at 124.30 and then the rising 50 DMA now at 123.26. Support then comes in at 122.80. Cash trade was moderate on moderate to good demand in all feeding regions. Compared to last week in Kansas live purchases traded 2.00 higher at 124.00. In Nebraska compared to last week, live purchases traded 2.00 higher at 124.00 with dressed purchases mostly 4.00 higher from 198.00-200.00, bulk at 199.00. In the Western Cornbelt compared to Thursday, a few live purchases traded mostly steady at 125.00. Dressed purchases compared to last week, traded 3.00-4.00 higher from 198.00-199.00. Boxed Beef cutouts were higher on moderate to fairly good demand and heavy offerings. Choice cutouts rose 0.24 to 208.49 and select was up 2.76 to 205.39. The choice/ select spread narrowed to 3.10 and the load count was 127. Slaughter was estimated to be 122,000. Saturday slaughter is estimated at 84,000 and the weekly total is estimated at 546,000. Last week, slaughter was estimated at 468,000 and last year’s slaughter was 535,000.
March Feeder Cattle opened lower and traded to the low of the day at 142.25, just below support at 142.40. This is also just above the now declining 200 DMA at 142.11. It also recovered and proceeded to trade to the session high at 143.625. This just above the key level at 143.50. This stopped the rally as price fell back and it settled at 142.675. It formed an inside candlestick. If price can hold settlement, a test of resistance at 143.50 and then 144.25 is possible. Resistance then comes in at 145.05, A failure from settlement could see price test support at 142.40 and the nearby 200 DMA at 142.11. Support then comes in at 140.775. The Feeder Cattle Index rose and is at 143.60 as of 01/01/2020.
Happy New Year. I hope you have a successful year in 2020.
For those interested I hold a weekly grain (with Sean Lusk) and livestock webinar on Thursdays, but due to the holiday season our next webinar will be on January 9th 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,
www.walshtrading.com
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.