Commentary
December Lean Hogs stayed in neutral on Monday, trading both sides of unchanged and settling at 62.65, just a couple ticks higher on the day. 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. The December Hogs contract is trading at a steep discount to the Lean Hog index. The discount is 14.16 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. 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 92.85 as of 10/02/2020. The Lean Hog Index ticked higher and is at 76.81 as of 10/01/2020.
Estimated Slaughter for Monday is 489,000 which is even with last week’s 489,000 and above last year’s slaughter at 485,000.
November Feeder Cattle was also stuck in neutral. It traded between 141.075 and 139.60 settling a couple ticks higher on the day at 139.925. Feeder Cattle is now back in the lower end of its trading range. The high is 144.55 and the low is 139.05. Support is at 138.95 and then 136.75. Resistance is at 140.775, 142.40, the 50 DMA (142.86) and then 143.50.
The Feeder Cattle Index decreased to 142.74 as of 10/02/2020.
December Live Cattle gap opened higher and then went into sleep mode. It traded to just shy of resistance at 112.35 making the high at 112.325. The low is 111.425 which closed the gap created on the open and settlement was at 111.65, slightly higher on the session. It is in the middle of its 113.575 – 109.80 trading range. 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 were mixed with choice cutouts down 1.90 to 216.98 and select up 0.40 to 208.01. The choice/ select spread narrowed to 8.97 and the load count was 132.
Monday’s estimated slaughter is 119,000, which is above last week’s 118,000 and last year’s 118,000.
The USDA report LM_Ct131 states: Thus far for Monday negotiated cash trading has been at a standstill in the Southern Plains. In Nebraska and the Western Cornbelt negotiated cash trading has been mostly inactive on very light demand. Not enough purchases for a market trend. Last week in the 5 Area feeding regions live purchases moved mostly at 107.00. For the prior week in Nebraska dressed purchases moved at 168.00. In the Western Cornbelt dressed purchases moved from 167.00-168.00 for previous week.
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 8, 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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