Commentary
October Lean Hogs broke down hard, failing to build on Thursday and Friday’s gains. With China and it looks like the rest of Asia saying they will not take pork from Germany the futures market looked poised to continue its surge as the preliminary pricing had futures prices a lot higher than Friday’s settlement. That proved to be a bluff as the market couldn’t overtake the Friday high and longs used this early strength to take profits. When other longs realized what was happening, they joined in the selling. This took price down to the low of the day at 64.40, which is just a tick away from closing the gap created on Friday. The gap was from 64.375 (Thursday’s high) to 66.125 (Friday’s low). The break down led to a bearish engulfing pattern forming and if the gap Thursday high doesn’t provide support, we could see price retrace some more. There is another gap below from the 9/9/2020 high at 61.725 and the Thursday (9/10/2020) low at 62.875. Hogs settled near the low at 64.625. If the gap can provide support, we could see price consolidate within the Monday range. A failure from the gap could see more profit taking.
The Pork Cutout Index increased and is at 80.74 as of 9/11/2020. The Lean Hog Index jumped and is at 63.28 as of 9/10/2020.
Estimated Slaughter for Monday is 486,000 which is above last week’s (holiday week) 6,000 and below last year’s slaughter at 490,000.
October Feeder Cattle gap opened higher and kept going. It traded to the high at 143.125 and settled at 142.60. It reclaimed the 50 DMA (142.10) and now must hold above here and challenge resistance at 143.50 and then 144.25. Resistance then comes in at 145.05. A failure below the 50 DMA could see price pullback and test the gap from Monday’s low at 141.075 and Friday’s high at 140.75. There is additional support nearby at 140.775. Support then comes in at 138.95.
The Feeder Cattle Index firmed and is at 141.47 as of 9/11/2020.
October Live Cattle started strong, opening higher and trading through the 200 DMA (106.03) on its way to the session high at 107.55. This is just above resistance at the declining 21 DMA (107.03) and my key level at 107.30. Resistance held back the buying frenzy and price pulled back to settle at 106.875. This is above the 200 DMA and it must hold to keep prices moving in a positive direction. Resistance remains at the 21 DMA, 107.30 and then 108.65. The 100 DMA is buoyed by the rising 50 DMA (105.88). If price can stay supported, we could see a positive cross of the 50 DMA over the 200 DMA. This would be bullish, in my opinion. Support then comes in at the 104.85 -104.20 zone.
Boxed beef cutouts were mixed with choice cutouts down 2.68 to 217.21 and select up 0.66 to 207.76. The choice/ select spread narrowed to 9.45 and the load count was 149.
Monday’s estimated slaughter is 120,000, which is above last week’s (holiday week) 3,000 and last year’s 119,000.
The USDA report LM_Ct131 states: Thus far for Monday negotiated cash trading has been at a standstill in all major feeding regions. Last week in the Texas Panhandle live purchases moved from 102.00-102.00. For the prior week in Kansas and Nebraska live purchases moved mostly at 101.00 and, in Nebraska, dressed purchases moved from 160.00-161.00. For the previous week in the Western Cornbelt live purchases moved from 100.00-103.00 and dressed purchases moved from 160.00-161.00.
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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