Commentary
December Lean Hogs made a new high for the up move reaching 70.70 before breaking down to the session low at 68.825. This was a test of support at 68.90 and it held with futures rallying into the close and settling at 69.80. This is right at the key level at 69.80. The high was just shy of resistance at 70.90. The key level at 69.80 will be the pivot for trade on Monday in my opinion. A failure from settlement could see support revisited at 68.90. Support then comes in at 67.80 and 66.55. A breakout above settlement could see resistance tested at 70.90. Resistance then comes in at 71.325 and then 71.80. Demand continues to look good as cutouts and cash hogs remain strong. Export sales were down as the Chinese were on holiday and their purchases sagged as a result. They most likely were back in the market this week. (See trade idea).
The Pork Cutout Index jumped and is at 96.56 as of 10/15/2020.
The Lean Hog Index increased and is at 78.49 as of 10/14/2020.
Estimated Slaughter for Friday is 487,000 which is even with last week and above last year’s slaughter at 483,000. Saturday slaughter is expected to be 264,000, which is below last year’s 289,000 and above last year’s 281,000. The weekly estimated total is expected to be 2,688,000 which is below last week’s 2,730,000 and last year’s 2,723,000.
January Feeder Cattle is now the lead contract for Feeder Cattle as its volume has surpassed the November volume. January Feeder Cattle took one to the chin on Friday and it landed hard on the canvass. It opened at the high (136.35) and was repeatedly knocked down to the ground making the low at 128.35. It was able to survive a knock out blow as it didn’t go limit down and it settled off the low at 129.325. This has created separation from the Feeder Cattle Index as the index coming into the session was at 140.91. This makes futures cheap to cash and as I write this article today’s update hasn’t arrived. Will this crash in the futures cause cattle buyers to pull back their bids in buying feeder cattle and bring down the index to the futures or will this be supportive to futures going forward? Settlement was below the key level at 129.65 and the low was below support at 128.875. Price must bounce back early on Monday as a weak open could keep Feeders in a negative tone going forward, in my opinion. Support is at 128.875,127.575 and then 125.90. Resistance is at 129.65, 131.10 and then 132.075.
The Feeder Cattle Index is at 140.91 as of 10/14/2020.
December Live Cattle continued its breakdown and made a new low for the down move, making the low at 108.125. This took price below support at 108.65 and it settled just below support at 108.625. Settlement was below the 50 DMA (109.35) and the key level at 109.60. Price must overtake these levels or more weakness will prevail in cattle, in my opinion. The weakness in futures, pressured the cash market and it traded weaker on limited trading on Friday. Live cattle traded at 106.00 – 107.00 and dressed cattle traded at 166.00 – 167.00. There seems to be fear the resurgence of the Wuhan virus as colder weather arrives will dampen demand for beef and possibly slow down slaughter at processing plants. Resistance is at 112.35, 113.90 and then 114.65. Staying below support at 108.65 could see price retest the new low. Support then comes in at 107.30 and then 106.025. Resistance is at 106.65, the 50 DMA, 109.60 and then 110.80.
Boxed beef cutouts were lower with choice cutouts down 0.45 to 210.03 and select down 2.98 to 193.52. The choice/ select spread widened to 16.51 and the load count was 127.
Friday’s estimated slaughter is 116,000, which is above last last’s 112,000, and last year’s 108,000. Saturday slaughter is expected to be 62,000, which is above last week’s 53,000 and below last year’s 72,000. The estimated weekly total is expected to be 654,000. This is above last week’s 637,000 and last year’s 643,000.
The USDA report LM_Ct131 states: Thus far for Friday negotiated cash trading in Kansas, Nebraska, and the Western Cornbelt has been mostly inactive on light demand. In the Texas Panhandle negotiated cash trading has been at a standstill. Not enough purchases in any region for a full market trend. The last reported market in the Southern Plains was on Wednesday at 108.00. In Nebraska live purchases moved at 108.00 on Thursday and dressed purchases moved at 169.00 on Wednesday. In the Western Cornbelt on Thursday, live purchases moved from 105.00-107.00 and dressed purchases moved from 167.00- 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 22, 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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