Walsh Trading Daily Insights
Commentary
June Lean Hogs gapped open higher at the start of Tuesday’s trading session and kept on going. It surged and traded up to its new expanded limit of 5.5 handles, going lock limit at 60.775. It remained there for most of the trading session before collapsing late in the session and nearly closing the opening gap, making the low at 55.30 which is just above Monday’s limit move high at 55.275. The reversal action in price puts a potentially bearish outlook on Hogs. The large bull candle from Monday and the gap open and failure today is 2/3 of an evening star candlestick formation. If we get a down move on Wednesday, this would be the final piece to the formation, in my opinion. This could lead to a breakdown in Hogs. More processing plants are going off-line and slaughter levels are falling. Monday’s slaughter was revised lower and Tuesday’s slaughter is estimated to be 283,000. The two-day total is estimated to be 586,000. This is down from last week’s 719,000 and last year’s 939,000. Producers don’t have anywhere to go with market ready hogs and are euthanizing hogs at an increasing rate. The Pork Cutout Index continues its climb and is at 75.69 as of 4-27-2020. The Lean Hog Index is also rising and is at 48.98 as of 4-27-2020. The cattle markets continue to consolidate, with August Feeder cattle trading in the middle of its 130.95 – 123.475 range and June Live Cattle in the middle of its 89.25 – 80.275 trading range. August Feeders settled at 127.925 and June Live Cattle settled at 84.70. Slaughter levels have plummeted and last week’s estimated slaughter was revised lower by 4,000 to 465,000. This week’s slaughter started at 81,000 on Monday, but it was revised lower to 77,000 and Tuesday’s slaughter is estimated at 76,000. The two-day total stands at 153,000, below last week’s 170,000 and way below last year’s 241,000. These are extremely low slaughter numbers for non-holiday markets. This continues to drive cutout prices to record levels and today’s cutouts soared. Choice cutouts surged 18.98 to 330.82 and select soared even more as it leaped a whopping 22.10 to 320.88. The choice/ select spread collapsed and is at 9.94. The load count was 99. The Feeder Cattle Index fell and is at 118.69 as of 4-27-2020. President Trump said he will sign an executive order late Tuesday invoking the Defense Production Act to mandate that packing plants continue to operate. President Trump will declare the packing facilities “critical infrastructure.” He said earlier that his administration was working with Tyson, indicating that the executive order would alleviate some of the liability concerns which had become a “road block” for the company. Officials said the executive order would affect all protein processing facilities, including eggs. The plant closures and slow-downs due to the Wuhan virus has put pressure on the availability of meat and livestock products for consumption. This is also creating a bottleneck at plants which is reducing the ability of producers to market their livestock in a timely manner.
Trade Suggestion(s)
Risk/Reward
Futures N/A
Options N/A
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Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
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