Walsh Trading Daily Insights
Commentary
December Lean Hogs made a new high for the up move reaching 72.80 before breaking down and settling at 71.425. The rally in December hogs stalled right at resistance at 72.80 and settlement was just above the key level at 71.325. December was strong while the remainder of the hog contract months were lower on the day. Cash and cutouts are strong near term with demand strong for pork and packers aggressively purchasing hogs for slaughter. The remainder of the hog complex suffered as demand worries are surfacing down the road. China has been aggressively growing its hog herd and many believe they will be cutting back on foreign purchases next year. Germany has also been aggressively lobbying China and other Asian countries to lift the blanket ban on German pork. They want a regionalized ban to affect only the areas that have been infected by the African Swine Fever. Remember China just last week found more cases of piglets infected with ASF. If that was in another country, they would be banning exports from that country. They are creating large scale farms that they say has the potential to keep ASF at bay as they are learning how to deal with the disease and security at these facilities are better. They are learning modern methods of production and are supposedly getting better at dealing with this disease. But… this is China. They are always scamming and moving product illegally from province to province and with pork prices at extremes over there, every Tom, Dick and Harry are trying to raise pigs and get rich. Until it can eliminate these people and stop the pirates from sneaking product across the country, they will not be able to eliminate the disease, in my opinion. The threat of a resurgence remains, in my opinion. And, over in Germany they continue to find new cases every week. It won’t be long before it gets into their market hog community, in my opinion. Resistance then comes in at 71.80, 72.80 and then 74.00. Support is at 71.325, 70.90 and then 69.80.
The Pork Cutout Index increased and is at 97.44 as of 10/16/2020.
The Lean Hog Index dipped lower and is at 78.23 as of 10/15/2020.
Estimated Slaughter for Monday is 488,000 which is above last week’s 478,000 and below last year’s slaughter at 490,000.
The Feeder Cattle contract has new limits in place of 5 handles and the November contract actually went down limit and nearly settled limit down. The January Feeder Cattle took repeated blows to the chin on Monday and it once again landed hard on the canvass. It nearly went limit down and settled down 4.10 handles at 125.225. It made the low at 124.375 as traders pounded away leaving the market limp and battered. This puts Feeder cash buyers in a precarious position as they want to own feeders even with slowly rising corn prices and futures telling them they are paying too much. This makes futures extremely cheap to cash. Friday’s cash index (10/15/2020) came in at 140.22, down .69 from Thursday. 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? It looks like cash buyers are backing off as the one day’s have been declining the past couple of days. The crash in futures has taken price past support at 125.90 and support below here comes in at 122.775 and then 120.50. Resistance is at 125.90, 127.575 and then 128.875.
The Feeder Cattle Index ticked higher and is at 140.26 as of 10/16/2020.
December Live Cattle collapsed on Monday, sending futures down to support at 104.85 making the low just below it at 104.70. Price also pierced the 100 DMA (105.00) and settled just above it at 105.15. The break down in futures continues to pressure the cash market and packers took advantage. Live cattle traded from 106.00 down to 103.00 and dressed cattle traded at 165.00 – 166.00. Fears are growing the resurgence of the Wuhan virus as colder weather arrives will destroy demand for beef and possibly slow down slaughter at processing plants. The European Union is shutting down due to increased virus cases and a potential Biden win has traders fearing the US will follow suit. Large cities in the US are shutting down restaurants and traders are acknowledging the holiday restaurant resurgence probably won’t materialize. Christmas parties and large gatherings are in jeopardy. I guess the belief is consumers won’t eat beef. Well, I think people will eat beef and may look to eat more beef at home to satisfy their need to celebrate. If beef is priced right in retail outlets consumers will consume. They will need to make themselves feel good instead of feeling good in group settings. I think beef will play a big role in that. The selloff may be overdone and there is strong support just below at the 200 DMA. The 200 DMA is right at 104.20 which is also one of my levels. If this doesn’t hold back the selling…look out below. Support then comes in at 103.00, 101.625 and then 100.275. Resistance is at 106.025, 107.30 and then 108.65.
Boxed beef cutouts were lower with choice cutouts down 0.29 to 209.74 and select down 1.68 to 191.84. The choice/ select spread widened to 17.90 and the load count was 114.
Monday’s estimated slaughter is 118,000, which is above last last’s 117,000, and last year’s 117,000.
The USDA report LM_Ct131 states: Thus far on Monday negotiated cash trading in the Southern Plains has been slow on light demand with live purchases 2.00 lower than last week at 106.00. In Nebraska, negotiated cash trading has been limited on light demand with a few live purchases at 105.00, however not enough for a full market trend. Last week live purchases moved at 108.00 and dressed purchases moved at 169.00. In the Western Cornbelt negotiated cash trade has been mostly inactive on very light demand, not enough purchases for a full market trend. Last week in the Western Cornbelt 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
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Fax: 312.256.0109
www.walshtrading.com
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