Walsh Trading Daily Insights
December Lean Hogs opened lower and fell apart. Constant chatter about the larger than expected number of hogs weighing over 180# took its toll on price today, taking the December Hogs down to the lower part of its 2-week trading range. The December contract has traded from 61.25 low to 64.85 high since becoming the lead contract on September 16th (based on volume). It was near the high on Monday and today’s price action took it down to 61.575. It settled at 61.975. Producers aren’t agreeing with the numbers the USDA put out and cash prices are strong in both cutouts and market ready hogs, so I can understand the producers’ viewpoint. The packing industry wouldn’t be aggressively purchasing hogs if there were an excessive number out there. They don’t pay more than they have to and it seems they have to at the present time. Export numbers have been excellent this year and I don’t see it abating any time soon. As the German African swine fever case load continues to grow, it will place more worries on the rest of Europe and the expectation it will infect other European countries. Spain has indicated it may be unable to increase exports to China due to full freezer space. This should benefit US producers if that is true. The cash market may be at the high end of price, but unless demand drops off a cliff, I think price should at least remain firm. Support is at 61.80, 59.825, 58.25 and then 57.025. Resistance is at 63.325, 64.80, 66.55 and then 67.80. (See trade idea).
The Pork Cutout Index increased and is at 90.73 as of 9/28/2020. The Lean Hog Index increased and is at 75.42 as of 9/25/2020.
Estimated Slaughter for Monday is 485,000 which is even with last week and below last year’s slaughter at 489,000. The weekly estimated total (so far) is 974,000, which is above last week’s 963,000 and even with last year.
November Feeder Cattle gap opened higher and surged, trading up to 144.55 before pulling back and settling at 143.775. The cash market has been stable and Feeders broke above trendline resistance and made a higher high, potentially starting a short-term uptrend. It closed above the 50 DMA (142.99) after faltering on previous attempts. All positive news, but it must stay above the 50 DMA on Wednesday to keep it going. Otherwise, it could turn into just another consolidation zone. It closed part of the gap from 144.35 to 144.875. Resistance is at 144.25, Wednesday’s high, 145.05 and then 146.20. Support is at 143.50, the 50 DMA, 142.40 and then 140.775.
The Feeder Cattle Index decreased to 142.36 as of 9/28/2020.
December Live Cattle also gap opened higher as the Cattle on Feed report further retreated from traders’ minds. Price continued its way higher, pushing past the 112.575 recent high to a new high at 113.55. This is just below resistance at 113.90. It settled at 113.125. Breaking out above the consolidation range between 112.575 high and 109.80 low is a positive step for the live cattle. Now it must keep it going. If it falls back, all it did was change the high of the range. Cash has been quiet so far this week with a tiny amount of trading at 104.00 and 105.00 in the Western Cornbelt. Cash needs to move higher not trade within last week’s range. Resistance is at 113.90 and then 114.65. Support is at 112.35, 110.80 and then 109.60.
Boxed beef cutouts were mixed with choice cutouts down 0.56 to 217.16 and select up 0.57 to 206.99. The choice/ select spread narrowed to 10.17 and the load count was 134.
Tuesday’s estimated slaughter is 120,000, which is lower than last week’s 121,000 and above last year’s 118,000. The weekly estimate (so far) is 238,000, which is below last week’s 241,000 and above last year’s 234,000.
The USDA report LM_Ct131 states: So far for Tuesday 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.
Hogs – Buy the June 100 call and sell the June 110/100 put spread for negative 860.
Max risk is $560.00 per contract plus commissions and fees.
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, October 1, 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.**
Senior Market Strategist
Walsh Trading, Inc.
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