Commentary
December Lean Hogs stayed in consolidation mode on Friday, showing some early strength before weakening into the close and settling slightly lower on the session at 62.50. Hogs have been trading within the 61.80 and 64.80 support and resistance zone, with the high at 64.85 and the low at 61.25 since the December contract took over as the lead contract. December Hogs are trading at a steep discount to the Lean Hog index. The discount is 14.24 to the index and the 5-year average is around 2.30 discount to the index. Futures are cheap compared to the index, in my opinion. Demand has been the story in my mind as cutout prices are trading at high levels for this time of year indicating stronger demand than normal. The cash hogs are also at high levels for this time of year as packers are willing to pay up for hogs because of the high cutout prices. Exports continue to be the highlight for pork and Mexico shows that China doesn’t have to be the big gun every week. Mexico bought 17,900 MT of pork last week vs China at 6,500 MT. I think exports will remain elevated and I think more Asian countries will start to compete for our pork going forward. Our producers have reduced usage of Ractopamine which will improve sales to Asian countries that refuse to buy pork that has been given this feed additive. 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 92.63 as of 10/01/2020. The Lean Hog Index increased and is at 76.74 as of 9/30/2020.
Estimated Slaughter for Friday is 464,000 which is above last week’s 462,000 and below last year’s slaughter at 482,000. Saturday slaughter is estimated to be 213,000, which is below last week’s slaughter at 220,000 and last year’s slaughter at 230,000. The weekly estimated total is expected to be 2,603,000, which is above last week’s 2,601,000 and below last year’s 2,660,000.
November Feeder Cattle gap opened lower, closed the gap then traded to the session low at 139.35, settling nearby at 139.875. Feeder Cattle is now back in the lower end of its trading range. The high is 144.55 and the low is 139.05. Continued selling pressure could see price test support at 138.95 and then 136.75. Resistance is at 140.775, 142.40, the 50 DMA (142.90) and then 143.50.
The Feeder Cattle Index increased to 142.96 as of 10/01/2020.
December Live Cattle fell back into the lower end of its 113.575 – 109.80 trading range. It traded down to just below 110.80 support, making the low at 110.75. Settlement was at 111.10. Price seems content to stay in this range as new highs have not been able to send prices to the next level, so far pulling back to the lower end of the range. Cash has been grinding higher, but futures are still trading at a premium to cash so upside has been limited. Resistance is at 112.35, 113.90 and then 114.65. Support is at 110.80, 109.60 and then 108.65.
Boxed beef cutouts ticked lower with choice cutouts down 0.10 to 218.88 and select down 0.01 to 207.61. The choice/ select spread narrowed to 11.27 and the load count was 121.
Friday’s estimated slaughter is 117,000, which is above last week’s 112,000 and last year’s 110,000. Saturday slaughter is expected to be 70,000 which is above last week’s 57,000 and last year’s 65,000. The weekly estimate is expected to be 665,000, which is above last week’s 651,000 and last year’s 645,000.
The USDA report LM_Ct131 states: Friday’s report hasn’t arrived… LMct130 – For Thursday in the Southern Plains negotiated cash trading was slow with light demand. In the Texas Panhandle, when compared to the last reported market on Wednesday, live purchases moved steady to 1.00 lower at 107.00. In Kansas live purchases moved fully steady at 107.00 when compared to the last reported market on Wednesday. For Thursday in Nebraska and Western Cornbelt negotiated cash trading was moderate with good demand. In Nebraska, when compared to the last reported market on Wednesday, live purchases moved fully steady at 107.00 and dressed purchases moved 1.00 higher at 168.00. In the Western Cornbelt, when compared to the last reported market on Wednesday, live purchases moved steady to 1.00 higher from 107.00 to 108.00, with a few up to 109.00, and dressed purchases moved 1.00 higher at 168.00.
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
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.**
Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
Direct: 312.957.4163
888.391.7894
Fax: 312.256.0109
www.walshtrading.com
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