Commentary
October Lean Hogs tested support at the 200 DMA (59.25) on Tuesday, trading down to the session low at 58.775. It recovered and settled above the 200 DMA at 59.90. This is positive to the Hog market, but price must stay above the 200 DMA or a bigger pullback could occur. Hogs made the session high at 60.275 which is below the Friday high at 60.95. If settlement holds a re-test of the Friday high is possible. If Hogs can’t challenge the Friday high and holds the 200 DMA, it could trade in a tight band until we see the weekly export data. That won’t come out until Friday. China continues to whittle down its frozen state reserves. It will auction 10,000 MT on Friday, September 11. China has auctioned over 540,000 MT of pork from its reserves. This will have to be replaced at some point. Settlement is near 59.825, a key level in my support / resistance numbers so this is once again pivotal in my opinion. Support is at the 200 DMA, 58.25 and then 57.025. Resistance is at 61.80 and then 63.325. Hogs are in a long-term downtrend but is building upon a short-term up-trend. The short-term moving averages are starting to flow higher which could lend support to any pullback and possibly provide buying opportunities. The cutouts and the Lean Hog Index remain firm after making their lows last month.
The Pork Cutout Index surged and is at 76.15 as of 9/4/2020. The Lean Hog Index increased and is at 58.64 as of 9/3/2020.
Estimated Slaughter for Tuesday is 474,000 which is below last week’s 475,000 and below last year’s slaughter at 492,000. The weekly slaughter (so far) is estimated at 480,000 (holiday week), lower than last week’s 951,000 and last year’s slaughter at 977,000.
October Feeder Cattle was strong on Tuesday, rallying off its hammer candlestick and settling near the session high. The high came in at 140.075 and settlement was at 139.85. It couldn’t reach resistance at 140.775, stopping just above the 8 DMA at 139.825. A pullback from here could see price test support at 138.95. Support then comes in at 136.75, the rising 100 DMA (136.62), 135.60 and the 200 DMA (135.54) (makes this area another pivotal spot, in my opinion). Resistance is at the 50 DMA (141.58), 142.40 and 143.50.
The Feeder Cattle Index dropped and is at 139.05 as of 9/4/2020.
October Live Cattle opened at the low (104.10) and surged, trading to the session high at 105.85 and settling near the high at 105.775. It reclaimed and settled above the rising 50 DMA (105.25), but is still below resistance at 106.025 and the 200 DMA (106.42). Battle lines are drawn… Does cattle challenge resistance or fall back below the 50 DMA? Support is at 104.85 – 104.20, 103.00 and then 100.275. Resistance is at 106.025, the 200 DMA, 107.30 and 108.65. China is auctioning 2,900 MT of frozen beef and mutton from its reserves on Sept. 10. This is a continuing pattern for China. The beef sold from its reserves will have to be replaced.
Boxed beef cutouts were lower with choice cutouts down 1.03 to 224.82 and select down 0.84 to 208.46. The choice/ select spread narrowed to 16.36 and the load count was 130.
Tuesday’s estimated slaughter is 118,000, which is below last week’s 120,000 and even with last year. The weekly estimated slaughter (so far) is 121,000 (holiday week), lower than last week’s 239,000 and lower than last year’s slaughter at 235,000.
The USDA report LM_Ct131 states: Thus far Tuesday, trade was mostly inactive on light demand in most feeding regions. The latest established market in any region was last week with live purchases in the Texas Panhandle from 102.00-104.00. Last week in Kansas, live purchases traded from 102.00-104.00, mostly at 103.00. Last week in Nebraska, live purchases traded from 102.00-103.00 with dressed purchases from 162.00-164.00. For the previous week in the Western Cornbelt, live purchases traded from 102.50- 104.00, mostly from 103.00-104.00. Dressed purchases last week traded from 162.00-164.00.
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 (except holiday weeks) and our next webinar will be on Thursday, September 10, 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.
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