Walsh Trading Daily Insights
Commentary
The livestock markets continued their volatile trading on Wednesday, gap opening higher making expanded limit moves in various contract months and pulling back, with hogs unable to hold onto its gains while the cattle markets were able to remain strong. The April cattle markets were able to hold onto its limit move so Live Cattle will have expanded limits. Hogs and Feeder cattle go back to their normal limits on Thursday. With the coronavirus firmly in place and causing disruptions in plant operations, slaughter levels have collapsed this week, especially for cattle. So far this week cattle slaughter is down 45,000 from last year, while hogs are slightly above last year. Cattle markets have a severe production problem even in normal times. With packers consolidating their production, a smart move for them as it limits where producers can bring their cattle, it gives packers an unbeatable advantage in the marketing of cattle, in my opinion. When something unexpected happens like the Tyson fire and the situation we are currently in, it provides packers an even more powerful pricing mechanism, in my opinion. With production down they can charge higher prices to retailers and lower prices paid to producers, in my opinion. There may be times they get caught short, but for the most part it seems to work out well for them, leaving producers and consumers paying the price, in my opinion. It is their ball and producers and retailers have to play the game the packers want to play in my opinion or they take the ball and go home. Packers will find a way to process the right amount of cattle to meet their customers’ needs at the price that is advantageous to the packer, in my opinion. Also, with the large amount of cattle under their control, they only need to purchase a limited number of cattle from producers to price the cattle they control, so they use this to their advantage, in my opinion. Right now, they are caught in a temporary bind with sickness in some plants and new safety protocols in place to protect workers. This is cutting production and packing plants are changing how they process cattle with the service industry down on the canvas. Slaughter is expected to drop to 550,000 to 570,000 this week after averaging around 630,000 for most of 2020. Consumer demand has normalized from the hoarding pace of the past few weeks, so cutouts have dropped around $33 from its highs. If production lingers in this 550,000 – 570,000 range, cutouts could once again soar, while producers could get whacked on their end. It is my guess that packers have used the futures markets to help paint a negative picture for cattle prices. Why wouldn’t they, when sharks see blood they attack, in my opinion. The cash – futures spread has widened to extreme levels, with cash reaching around 23 cents plus over futures. The rally the past couple of days has narrowed that spread. Cash traded today on the fedcattleexchange.com auction at 105.00 on a live basis. Out of 7,561 head for sale, 1,443 head were sold at that price. The Southern Plains also saw some trading at 105.00. In Nebraska and the Western Cornbelt a few dressed cash trades took place at 168.00. Boxed beef cutout values were sharply lower on light demand and light to moderate offerings. Choice cutouts were down 5.54 to 222.34 and select cutouts dropped 5.98 to 211.77 on 145 loads. The choice/ select spread widened to 10.57. Slaughter was estimated to be 102,000. The Feeder Cattle Index fell to 117.05 as of April 6, 2020. The Lean Hog Index continued its slide and is at 55.52 as of April 6,2020. The Pork Cutout Index sank and is at 57.91 as of April 7,2020.
Trade Suggestion(s)
Risk/Reward
Futures N/A
Options N/A
For those interested I hold a weekly grain (with Sean Lusk) and livestock webinar on Thursdays and our next webinar will be on Thursday, April 9,2020 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
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