Commentary
December Lean Hogs rallied to the upper boundary of the trading range, making the high at 64.80, which is right at resistance. It settled nearby at 64.575. 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. Thursday brings us the export sales report and that could cause a breakout or price could revert to the middle of the range, depending on what the report shows. In my opinion, as long as the report doesn’t fall below 20,000 MT of sales hog sales are looking good. China is on vacation so they may be out of the market for a week. They need pork so you never know…. Even though except for the first week of the German African Swine Fever story hasn’t shown outrageous sales to China or Asia, the possibility remains our sales could jump to extraordinary levels to China and Asia. China needs food in my opinion and they will need food for the foreseeable future as they cannot feed themselves and the African Swine Fever is still around, even though it is not talked about. The December Hogs contract is also trading at a steep discount to the Lean Hog 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 was higher and is at 93.33 as of 10/06/2020.
The Lean Hog Index increased and is at 77.41 as of 10/05/2020.
Estimated Slaughter for Wednesday is 489,000 which is above last week’s 467,000 and below last year’s slaughter at 492,000. The weekly estimated (so far) total is 1,465,000 which is above last year’s 1,441,000 and even with last year.
November Feeder Cattle got hammered early in the trading session as corn strength continues to worry cattle traders. It made another new low for the down move at 135.825. This just above support at 135.60 and the 200 DMA at 135.37. Traders started scooping up futures and it recovered nicely settling in positive territory at 137.875, forming a hammer candlestick in the process. It settled below the 100 DMA (138.94) for the second day in a row and this along with the key level at 138.95 will be strong resistance. A lot of times when the 100 and 200 are tested like this price will bounce around between the two levels before breaking out one way or the other. Corn and the Live Cattle contract could determine how Feeders move. Cash fats are grinding higher and if corn stabilizes at current levels Feeders could recover. It is also trading below the Feeder Cattle index and that could be supportive if the index doesn’t falter. Support is at 136.75,135.60, the 200 DMA and then 134.25. Resistance is at the 100 DMA, 138.95,140.775, 142.40, the 50 DMA (142.74) and then 143.50.
The Feeder Cattle Index decreased and is at 142.71 as of 10/06/2020.
December Live Cattle was firm, yet continues to run in place staying within its trading range, with the high at 113.575 and the low at 109.80. Wednesday’s high was 113.25 and it settled nearby at 113.10. Cash continues to firm with cash live cattle trading at 107.00 to 108.50 and dressed trading at 169.00 (so far) on Wednesday. Resistance is at 113.90 and then 114.65. Support is at 112.35, 110.80, 109.60 and then 108.65.
Boxed beef cutouts were mixed with choice cutouts up 0.64 to 216.88 and select down 1.26 to 205.58. The choice/ select spread narrowed to 11.30 and the load count was 159.
Wednesday’s estimated slaughter is 119,000, which is below last week’s 120,000 and above last year’s 118,000. The estimated weekly (so far) total is 355,000. This is lower than last week’s 358,000 and above last year’s 354,000.
The USDA report LM_Ct131 states: Thus far for Wednesday negotiated cash trading in Nebraska and the Western Cornbelt has been limited on light demand with a few early dressed purchases at 169.00 in both regions. In the Southern Plains negotiated cash trading has been mostly inactive on very light demand. Not enough purchases in any region 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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