Walsh Trading Daily Insights
Commentary
December Lean Hogs rallied today, gap opening higher and trading to the upper end of the trading range, making the high at 64.625. This is just below resistance at 64.80. Hogs pulled back and settled at 63.875. So, even with the rally Hogs are still 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. It is in the upper end of its range not the lower end. The December Hogs contract is trading at a steep discount to the Lean Hog index. The discount is 13.39 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 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 93.13 as of 10/05/2020. The Lean Hog Index increased and is at 77.26 as of 10/02/2020.
Estimated Slaughter for Tuesday is 487,000 which is above last week’s 485,000 and below last year’s slaughter at 488,000. The weekly estimated (so far) total is 976,000 which is above last year’s 974,000 and last year’s 973,000.
November Feeder Cattle made an attempt to rally early in the trading session and failed. It made the high at 140.925, just above resistance at 140.775 then collapsed. It traded to a new low for the down move at 136.85. It made a couple of feeble attempts to come back but couldn’t sustain the rallies and settled near the low at 137.525. It broke down past the lower end of its trading range. The high is 144.55 and the low was 139.05. It also settled below the 100 DMA at 138.87. The low was just above the 136.75 support level. Corn was strong today and it created concern in the Feeder Cattle contract. Drought is affecting pastures and potentially higher feed costs are weighing on traders’ minds. The index however is still performing well but traders are ignoring that fact. Support is at 136.75,135.60, the 200 DMA (135.40) and then 134.24. Resistance is at the 100 DMA, 138.95,140.775, 142.40, the 50 DMA (142.82) and then 143.50.
The Feeder Cattle Index increased to 143.10 as of 10/05/2020.
December Live Cattle continues to run in place and traded in a narrow trading range, with the high at 112.95 and the low at 111.75. It settled at 111.95. 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 lower with choice cutouts down 0.74 to 216.24 and select down 1.17 to 206.84. The choice/ select spread narrowed to 9.40 and the load count was 168.
Tuesday’s estimated slaughter is 120,000, which is even with last week and above last year’s 118,000. Yesterday’s slaughter was revised lower to 116,000 making the estimated weekly (so far) total 236,000. This is lower than last week’s 238,000 and even with last year.
The USDA report LM_Ct131 states: Thus 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 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 the 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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