Walsh Trading Daily Insights
Commentary
October Lean Hogs gap opened lower on Friday and kept going almost closing the gap from the 8/19/2020 high (52.825) to the 8/20/2020 low (53.55) while making the low at 53.225. The gap created from the lower open is from Thursday’s low at 55.275 and Friday’s high at 55.075. The low approached support at the rising 100 DMA at 52.97. Settlement was at 53.65. The 100 DMA and the bottom of the gap is critical support for October Hogs, in my opinion. A close below support could see price test the 51.80, 50.475 and then 49.35 support levels. The gap formed on Friday could be strong resistance. Resistance is at 53.825, 54.775, the gap, 55.625, 56.10 57.025and then 58.25. Hogs are in a long-term downtrend but is attempting to build upon a short-term up-trend. Support needs to hold in my opinion or the fledging uptrend could disappear as the long-term down trend reasserts itself. Cutouts and the Lean Hog Index remain firm after making their lows last month, but could be peaking.
The Pork Cutout Index was decreased and is at 73.53 as of 8/27/2020. The Lean Hog Index rose and is at 57.12 as of 8/26/2020.
Estimated Slaughter for Friday is 481,000 which is above last week’s 476,000 and last year’s slaughter at 470,000. Saturday’s slaughter is expected be 276,000, above last week’s 227,000 and last year’s 82,000. The total for the week is expected to be 2,664,000 which is above last week’s 2,618,000 and last year’s 2,468,000.
October Feeder Cattle consolidated within the lower end of Thursday’s trading range. It settled below the 50 DMA (140.75) at 140.175. The Friday low was 139.725. A break down below here could see price test support at 138.95 and then 136.75. The 200 DMA (135.68) and the rising 100 DMA (135.48) are next. This area must be defended on any break down or Feeders could see further weakness. If settlement holds more consolidation is in store for price. Must see a rally above the 141.20 high and a close over the 50 DMA on Monday which is month end to hopefully refuel the uptrend, in my opinion. The Feeder Cattle Index fell and is at 141.56 as of 8/27/2020.
October Live Cattle broke down and made a new low for the fledging down trend at 104.60. Settlement was at 104.90. It is now in a critical area in my opinion. Support is at 104.85 – 104.20, the 50 DMA is rising and is next at 104.18. Since the October contract became the lead contract the low is at 103.65. A failure from here could see price break down and test support at 100.275. This would pressure cash prices in a big way in my opinion. If settlement holds price could revisit resistance at 106.025. The 200 DMA is next at 106.99. This should strong resistance. If price can retake the 200 DMA maybe sentiment could be changed.
Boxed beef cutouts were mixed with choice cutouts down 2.14 to 229.40 and select up 0.60 to 214.86. The choice/ select spread narrowed to 14.54 and the load count was 114.
Friday’s estimated slaughter is 116,000, which is even with last week and below last year’s 117,000. Saturday’s slaughter is estimated to be 66,000 also even with last week and above last year’s 65,000. The estimated total for the week is expected to be 654,000 which is above last week’s 652,000 and last year’s 653,000.
The USDA report LM_Ct131 states: Thus far Friday trade was very limited on light demand in all feeding regions. Not enough purchases in any region for an adequate market test. The latest established market in any region was on Wednesday with live purchases in Nebraska at 105.00 and dressed purchases from 166.00-167.50, mostly at 167.00. On Wednesday in the Western Cornbelt, live purchases traded from 104.00- 107.00 with dressed purchases from 166.00-167.00, mostly at 167.00. On Wednesday in Kansas, live purchases traded at 105.00. The latest established market in the Texas Panhandle was on Tuesday with live purchases at 105.00.
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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