Commentary
December Lean Hogs consolidated within Friday’s trading range on Monday. Since becoming the lead contract, the December Hogs have been trading between 64.85 and 61.25. Cash has been strong (cutout prices and cash hog prices) as strong demand from both domestic and foreign buyers has led to rising prices. I think the Hogs and Pigs report is creating some confusion as it is showing the backlog in market ready hogs isn’t declining as the industry would like, but producers believe the numbers are declining. The German African swine fever case load continues to grow, but it has been found only in wild boar and it hasn’t affected farms. Still, the danger is there and Asian customers have moved away from German pork products so in my opinion demand for US pork should remain strong going forward. Support is at 63.325, 61.80, 59.825, 58.25 and then 57.025. Resistance is at 64.80, 66.55 and then 67.80. (See trade idea).
The Pork Cutout Index increased and is at 90.13 as of 9/25/2020. The Lean Hog Index increased and is at 74.53 as of 9/24/2020.
Estimated Slaughter for Monday is 489,000 which is above last week’s 478,000 and last year’s slaughter at 485,000.
November Feeder Cattle gap opened lower and tested support at 138.95, making the low just above it at 139.05. Feeders worked its way higher and reached a high of 141.20, closing the gap and settling nearby at 141.10. It settled above the key level at 140.775 and this should key trade for Tuesday in my opinion. A rally above settlement could see price test resistance at 142.40. A failure from 140.775 could see price revisit support at 138.95. Resistance is at 142.40, the 50 DMA at 142.95 and then 143.50. There is resistance at the gap from 144.35 to 144.875. Resistance then comes in at 145.05 and 146.20. Support is at 140.775 and then 138.95.
The Feeder Cattle Index hasn’t updated as I write my article.
December Live Cattle also gap opened lower as the Cattle on Feed report from Friday afternoon had traders bearish at the start of Monday’s trade. Once again, the selling subsided and futures rallied to the high at 111.925 and it settled at 111.65. December cattle has been consolidating in a range since becoming lead contract between 112.575 high and 109.80 low. That’s right at resistance at 112.35 and 109.60 support. A breakout above resistance could see price test 113.90 and then 114.65. A breakdown below 109.60 could see support tested at 108.65 and then 107.30.
Boxed beef cutouts were lower with choice cutouts down 1.62 to 217.72 and select down 0.56 to 206.42. The choice/ select spread narrowed to 11.30 and the load count was 148.
Monday’s estimated slaughter is 118,000, which is lower than last week’s 120,000 and above last year’s 116,000.
The USDA report LM_Ct131 states: Thus far for Monday negotiated cash trading has been at a standstill in the Southern Plains and Nebraska. In the Western Cornbelt negotiated cash trading has been mostly inactive on very light demand. Not enough purchases for a market trend. Last week in all major feeding regions live purchases moved at 105.00. In Nebraska and Western Cornbelt dressed purchases moved at 165.00.
Trade Suggestion(s)
Hogs – Buy the June 100 call and sell the June 110/100 put spread for negative 860.
Risk/Reward
Max risk is $560.00 per contract plus commissions and fees.
Futures N/A
Options N/A
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**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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